11:20 ET
Semi Equipment Makers : It's another ugly day in the market for the semi equipment makers. The Semi Index (SOX 323.27 -30.43) has slumped to a low not seen since December 1998. The SOX has been unable to hold support at 350/340, with the next important area in the 310/300 range. The culprit today is Taiwan Semi cutting its 2002 capex budget. This follows recent cuts from a slew of other chipmakers, including Intel, Advanced Micro Devices, Infineon, Phillips Semiconductor and Motorola. Spending is slowing in part due to continued declines in the equity markets, which has eroded corporate and consumer confidence. Another fear is that IT spending and discretionary spending on electronics will slow or even erode in the seasonally strong second half. While many investors have been expecting a slowdown in orders in the second half of the year and into 2003, CIBC says the "worst-case scenario" is not fully discounted in the stock prices. The firm says if that scenario plays out, the stocks could fall another 35% to 50%... You're starting to hear the chip equipment makers reflect the cuts. Novellus (NVLS 24.07 -3.20) recently said orders will be down 10% sequentially in Q3, whereas investors had been expecting +5%. However, a fair number have not guided down much. Expect the group to trade sideways until bellwether Applied Materials (AMAT 14.50 -2.05) reports its results and offers its outlook on Aug 13. To this point, AMAT has not really acknowledged the slowdown. In May, the company even said it was seeing a recovery in the semiconductor market. When there are conflicting outlooks, it's always safer to go with the more conservative one. So be careful with the group in the near term as an AMAT bombshell is a possibility in three weeks. Bottom line, the group has been beaten up the last two months setting up more realistic valuations. A nice aspect about the group is that it's truly cyclical, meaning you want to buy these stocks when they are getting kicked around and left for dead -- not in the good times. They always come back. With the news stream likely to be fairly negative over the next month, you may be able to pick up some quality names at even lower prices, but they are getting pretty cheap already. -- Robert J. Reid, Briefing.com |
