Strategist says PC/Chips to Surprise
By Karen Talley
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--It's [a] day two of downgrades for personal computer stocks, but one investment strategist is dismissing the dour views. He is urging investors to begin loading up on the makers of semiconductors that go into these products.
Francois Trahan, equity strategist with Brown Brothers Harriman, is taking a contrarian view from Credit Suisse First Boston, which was heard from on Thursday, and Solomon Smith Barney, which issued its own negative report on Wednesday.
In essence, the Credit Suisse and Salomon analysts say sales declines can be expected to last into the second quarter and that continued price wars will make sales softer still. Credit Suisse translated its reservations into downgrades for PC unit growth, to 5% from 10% this year, and reduced estimates for a number of PC makers.
Against this backdrop, why is Trahan pounding the table for the stocks of PC-chip makers such as Intel Corp. (INTC), Advanced Micro Devices Inc. (AMD), Micron Technologies Inc. (MU) and small caps such as Standard Microsystems Corp. (SMSC), ESS Technology Inc. (ESST) and Alliance Semiconductor Corp. (ALSC)?
Basically, because the analysts are wrong, he says. "Remember, these are the same guys who were very bullish about PCs in 2001, and look what happened."
"The analysts do understand their companies," Trahan said. "But I don't think they have a handle on macro factors" such as the improving employment situation in the U.S. and the global economy beginning to gain traction.
Trahan, in fact, is even more committed to his stance now that the analysts are teeing off on PCs. "I think my recommendation is well timed" from a contrarian standpoint, he said.
Semiconductors that go into PCs are, in fact, the first chip group that's going to turn up on a sustainable basis, Trahan believes. They will outpace communications chips such as those made by PMC-Sierra Inc. (PMCS) and Vitesse Semiconductor Corp. (VTSS), and also chips from Analog Devices Inc. (ADI) and Maxim Integrated Products Inc. (MXIM). These chip companies fall into a group Trahan calls diversified manufacturers, or makers of products such as auto products, DVDs and, to some degree, cell phones.
For one thing, PC-chip makers have history on their side. For the last 12 years, this group has been the first to recover when the semiconductor market started perking up. Plus, for all the talk about PCs being commodities, and hard to profit from on a price basis, Trahan said PC-chip makers have never had pricing power - volume has been their earnings driver. And, though the traditional word processing PC may no longer be flying off shelves, PC upgrades and units with Internet abilities should see brisk demand.
Trahan isn't saying that other chip groups will do poorly this year. They will fare well, also benefiting from pickups in industrial and labor demand - just not as well as PC-chip makers, he believes.
-By Karen Talley, Dow Jones Newswires; 201-938-5106; karen.talley@dowjones.com
(END) DOW JONES NEWS 03-14-02
03:06 PM |
