Chip insiders resume stock purchases
By Matt Andrejczak & Chris Kraeuter, CBS.MarketWatch.com
Last Update: 12:07 AM ET Sept. 14, 2002
marketwatch.com
SAN FRANCISCO (CBS.MW) -- Semiconductor stocks may be weak and have further to fall, but executives at some of the biggest chip companies are starting to bet that the bottom is near at hand.
Recent purchases by top executives at Vitesse Semiconductor (VTSS: news, chart, profile), LSI Logic (LSI: news, chart, profile), and Advanced Micro Devices (AMD: news, chart, profile) signal that chip executives are growing bullish about a possible turnaround in their beleaguered industry, a trend that may develop in the coming months.
"There has been a dramatic upswing," said Michael Painchaud, research director for Market Profile Theorems, a Seattle-based research firm that tracks insider activity. "The average investor should conclude that their risk level in the semiconductor area is much less than in 1999 and 2000 when insiders were bailing."
Semiconductor insiders bought $3.6 million worth of stock in August, the most since executives purchased $11 million worth of stock in November 2001, according to preliminary data from Thomson Financial. The late summer buying put the sector's monthly sell-to-buy ratio at its lowest point in four years.
While the short-term picture for the chip industry is dismal, anecdotal evidence suggests semiconductor insiders and investors who bought shares after the last plunge in chip stocks benefited.
For instance, after last fall's big insider buying binge, the Philadelphia Semiconductor Index ($SOX: news, chart, profile) rose almost 20 percent during the next three months.
With many semiconductor companies trading at multi-year lows, observers said some chip executives are betting that their stocks are at or near their bottoms.
"I would expect much more buying in this sector," predicts Jonathan Moreland, who runs InsiderInsights.com. "This is just the beginning."
In the case of Vitesse, which makes communications chips, Chief Executive Louis Tomasetta bought 250,000 shares and Chief Financial Officer Eugene Hovanec bought 180,000 shares since the beginning of August in 10 different transactions.
The executives, though, have reason to publicly support their stock.
Vitesse was dropped from the S&P 500 Index in August and the company continues to lose money. Shares have fallen 89 percent this year to around $1.30 and are off 99 percent from an all-time high of $106 in March 2000.
"I think they are trying to show support for their company," said Paul Brandeis, analyst with Needham who covers wireline communications chipmakers. "This is an opportunity for them to show confidence in their stock and probably make a lot of money down the road."
Brandeis said, however, a turnaround is not imminent. "They still have a long way to go. The end markets still have fundamental problems, capital expenditures continue to be cut and there are structural issues in the marketplace that need to be worked out."
LSI Logic Chief Executive Wilfred Corrigan bought 100,000 shares at $7.67 each at the end of July. LSI currently trades around $8.
Last week, LSI launched a major new product called RapidChip and the company reiterated financial targets for its current quarter. The company, which makes chips used in consumer, storage and communications products, expects to reach profitability in the fourth quarter.
A company spokesman said Corrigan periodically buys stock when he "believes it is undervalued and he is confident in a recovery in the semiconductor industry."
His track record is indeed noteworthy.
Based on Corrigan's previous eight share purchases on the open-market, LSI's stock gained 47 percent on average in the following six months, according to Thomson research.
AMD Chief Executive Hector de J. Ruiz made his first open-market purchases since assuming the top executive's position five months ago. On Aug. 1 and 2, he bought 24,000 shares at prices between $7.39 and $7.90 each. All together, he owns 1 million shares subject to options exercisable after Feb. 25.
Later this year, AMD is slated to launch one of its biggest product lines ever. The chips are expected to significantly help AMD battle leader Intel in the market for computer microprocessors. A company spokesman said de J. Ruiz views the stock as undervalued and likes the company's long-term prospects.
Despite the stock purchases by industry insiders of late, the chip sector remains plagued by problems, analysts said, most notably the demand for personal computers -- its top product.
Just this past week, research house IDC lowered its growth forecasts for PCs through 2003 to reflect weakening demand from both consumer and business users.
Total worldwide PC shipments are now expected to only grow 1.1 percent in 2002 and 8.4 percent in 2003. The numbers were reduced from the June forecast for growth of 4.7 percent in 2002 and 11.1 percent in 2003.
Optimism for chip companies was also shattered by an unexpectedly weak back-to-school shopping season, traditionally a significant period for PC purchases. And the Christmas shopping season, the peak consumer buying period for electronics and PCs, is shaping up to be lackluster.
Further, telecom companies, major buyers of semiconductors, are stuck in a downturn many predict won't end until well into 2003.
Tired of hearing about an imminent upturn, investors have pummeled chip stocks to multi-year lows after a brief run up in early August. The Philadelphia Semiconductor Index - an industry barometer - established a four-year low last week.
Another factor to consider: insider selling, which is common among semiconductor executives, has tapered off compared to earlier this year. Stock sales reached $75.3 million during the past three months versus $378.4 million from January to March, according to Thomson data.
The lack of selling coupled with increased insider buying by chip executives is a positive sign for investors, observers added.
Painchaud from Market Profile Theorems said semiconductor bullishness among insiders is at a 24-month high.
Thanks for the updated tables Don.
RtS |
