Message 16879586
Since fundamentals in the broadband cable IC segment (e.g., ICs for digital
set-top boxes and cable modems) appear to be better than other segments,
stocks such as Broadcom and Microtune represent relatively defensible ways to
play the group, in our opinion. Telecommunications IC suppliers such as
AMCC, PMC-Sierra and Vitesse represent higher risk/reward prospects.
There are stocks in our communications IC coverage that are attractively
valued such as Agere Systems (4.0x estimated 2002 sales as of this writing),
Centillium (also 4.0x) and Multilink (4.7x).
Generally, the prevailing wisdom is that a recovery will follow a 'First In,
First Out', so the sectors that were fundamentally first into the downturn
will be the first out. For example, enterprise-oriented communications ICs
were among the first into the downturn and the worst now seems behind us.
Telecom ICs are likely to have the last recovery in fundamentals.
For better or worse, the communications IC stocks do not track the FIFO logic
very closely. For example, Broadcom's business is better than PMC's, but
both stocks are up 160% from the 52-week lows. With few exceptions,
comparing a two-year chart of the SOX with a similar chart for individual
comm IC stocks shows a similar pattern: a NASDAQ-related peak in March 2000,
a steep decline in Q2-00, a recovery close to peak levels in the middle of
the year, followed by a plunging decline from September 2000 into April 2001.
We conclude that the sector decision (e.g., overweight semis) overshadows the
sub-sector choice. |
