Chip Investors Pin Random Hopes on DRAM
By Tish Williams
Senior Writer
04/02/2002 07:15 AM EST
thestreet.com
It's truly a cold, dark night when a shivering semiconductor industry turns to DRAM for warmth.
Tired of talking about the bottom of the so-called demand cycle, chip investors are hoping to see mobile phones flying off the shelves and big companies loading up on PCs. Analysts are waiting for plants to start churning out the chips after loafing at two-thirds of capacity in the fourth quarter.
But so far all the chip industry has to offer are flat sales, driven in part by a 24% jump in January sales of DRAM chips. And if it weren't for the strength in this most basic of all memory-chip businesses, chip sales wouldn't have picked up at all -- and investors would have no evidence whatsoever of the much-anticipated ordering up-cycle. That means the smart money, as has been the case for months in this sector, continues to pace the sidelines.
"We're seeing normal seasonal practices, so we're out of the normal cyclical downturn," explains Dan Scovel of Needham & Co. "We're limping along."
Don't misunderstand -- Wall Street is excited to see DRAM prices climbing steadily. Less than two weeks ago, Micron (MU:NYSE - news - commentary - research - analysis) boasted that by tightly managing its DRAM business, it raised revenue by 52% from the first to second fiscal quarters of 2002. But those gains come not from rebounding end markets but from Micron and its competitors constraining the supply of memory chips supplied to the market.
Scanning the horizon, there's no IT budget strength in sight. Wall Street increasingly agrees that it's time to chuck the 2002 calendar and hope for the ballyhooed cyclical PC-buying surge to hit in 2003. Mobile-phone strength is coming into question, as data services seem less likely to move a significant amount of handsets this year but more of a factor in 2003 sales. As for networking equipment, just after communications chipmakers announced they were beginning to resupply the Ciscos of the world, the switching giant and competitor Lucent (LU:Nasdaq - news - commentary - research - analysis) both expressed dismay at renewed weakness among their customers.
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"The argument will be as we exit this year, what is the nature of the strength of the business?" Scovel says. "Will we see a normal seasonal uptick or more than that?"
Sounds a lot like the hopes investors had for 2002, none of which seem likely to pan out into better-than-anticipated first-quarter numbers when earnings season begins in two weeks.
The Semiconductor Industry Association reported Friday that worldwide chip revenue stayed steady in February at around $10 billion. Both the month-to-month and year-over-year comparisons improved, but that's primarily due to weak comparisons.
Jim Liang of Pacific Growth Equities expects year-over-year declines to reverse in the June or September quarters. "The first half of 2002 will be primarily driven by inventory rebounds without any significant end-market rebound," says the communications chip analyst. "In the second half, we expect datacom and a portion of other communications to improve." Liang is hopeful that IT spending will lag the positive economic indicators that investors have been hearing about by only one to two quarters.
In the meantime, chip stocks are stalled in the beginning portions of the up-cycle. With so much chipmaking potential going to waste and no customers to drive it, we may have hit the bottom, but the upturn continues to be out of reach.
Cary, in my opinion you are a pragmatist. By that I mean you really dig to better understand the stocks and there associated businesses in which you invest. Whether some people see your posts, or viewpoints, in another light is immaterial. Keep making us all look a little harder at our own investments. Especially the buy and sell points and ultimately we will all benefit.
Finally it really does not matter to me who among us gets the best investment returns. I don't care if someone else is in stock A while I am in stock B because the larger issues in this industry tend to move as part of the heard. In fact I don't care if people are long or short. As long as an investor states his or her personal bias and some reasoning for their position then we all learn something from the discourse that occurs here.
RtS |
