Frankly, the comments from Joseph and Niles today suggest to Briefing.com that a near-term rebound in end demand is not the sure thing that is being priced into stocks. Although the technical breakout has been encouraging, it loses some luster given the lack of fundamental support behind it. Accordingly, investors should be prepared to see choppy trading conditions persist in the chip and chip equipment stocks.-- Patrick J. O'Hare, Briefing.com
Intel (INTC) 30.47 -1.21: The stock of the world's largest semiconductor company isn't doing much to help the broader market today as it is down more than a point in the wake of negative comments from two of the industry's most influential analysts. First, Jonathan Joseph of Salomon Smith Barney cut his Q3, FY01 and FY02 EPS estimates. For good measure, he also lowered his Q3 revenue estimate to $6.24 bln from $6.64 bln, saying that channel checks suggest Intel's average processor contract price may be running slightly lower than anticipated and that expectations for a meaningful back-to-school season are rapidly fading in the PC component business. Secondly, Lehman Bros. analyst, Dan Niles, said he expects Intel to detonate a price bomb on Aug. 26 in an attempt to win back some of the market share it has lost to Advanced Micro Devices (AMD 17.94 -1.31). Specifically, he thinks Intel is planning to cut prices on its high-end Pentium IV 1.8 GHz by as much as 50%. Niles thinks Intel will also lower prices on processors designed for the value segment of the PC market and declared that "...those who thought the price war was already aggressive...haven't seen anything yet." Suffice it to say, the observations from Joseph and Niles are prompting some second-guessing of the impressive rally waged by the semiconductor industry over the past seven sessions. For those who weren't keeping track, the Philadelphia Semiconductor Index (SOX) surged nearly 21% from its intra-day low on July 25 to Friday's closing level of 641.06. In the course of that rally, the SOX Index moved above its 200-day moving average-- previously a major resistance point. That technical breakout prompted some additional buying interest as it was construed to be a bullish indication that better times lie ahead for the industry. One would hope so given how bad things have gotten; however, the technical breakout provides no indication as to when investors can realistically expect end demand to rebound in substantive fashion. Unfortunately, there hasn't been any convincing fundamental data to suggest when that might be either. Frankly, the comments from Joseph and Niles today suggest to Briefing.com that a near-term rebound in end demand is not the sure thing that is being priced into stocks. Although the technical breakout has been encouraging, it loses some luster given the lack of fundamental support behind it. Accordingly, investors should be prepared to see choppy trading conditions persist in the chip and chip equipment stocks.-- Patrick J. O'Hare, Briefing.com |
