Is It Time to Cash in Your Chips?
By ERIC J. SAVITZ
Barrons article, Sat Nov. 10th
Well, that settles it.
We're heading for a big-time recovery in chip demand. It says so, right here in the latest forecast from the Semiconductor Industry Association. The trade group expects chip sales will finish this year down a whopping 31%, but that sales will rebound to show 6% growth in 2002, followed by 21% gains in both 2003 and 2004. Woo-hoo! Just like old times.
Alas, the SIA's track record for predicting demand is a little, uh, unreliable. Care to guess what the SIA had predicted one year ago for 2001? Would you believe 22% growth? In other words, they whiffed big time, which as it happens is not infrequently the case with the SIA's forecasting.
But let's not be too hard on them; the truth is, forecasting chip demand is a chancy business at best. Terry Ragsdale, a semiconductor analyst at Goldman Sachs, hesitates to provide projections for more than a quarter or two. Press him, and he'll predict a flat year for 2002.
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Meanwhile, Jim Covello, Goldman's semiconductor equipment maven, sees his sector "setting up for another down leg." He cites three developments that could pressure equipment stocks. One is Wednesday's earnings call from Applied Materials, which Covello thinks will prove disappointing. He also expects increased evidence of a slowdown at Asian contract fabricators and test houses. Not least, he sees trouble ahead in Intel's expected January disclosure of 2002 capital spending plans.
Intel spent $7.5 billion on new chipmaking gear this year; Covello expects the 2002 figure to shrink to $5- $5.5 billion. That's an interesting call, since Intel has already hinted that the budget would be down only 10-20 percent, which implies spending of $6-$6.75 billion. But Covello thinks that Intel had been trying to soften the blow, and will ratchet down further. Covello's chip-equipment picks? He has none.
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Jim |
