Negative Outlooks Slams Tech Stocks
Monday September 23, 4:21 pm ET
By Ben Berkowitz
biz.yahoo.com
LOS ANGELES (Reuters) - Weak demand for computer production equipment and manufacturing services necessary to build the latest high-tech products point to sluggish sales for the rest of this year, financial analysts said on Monday.
Technology stocks in Europe and the United States swooned on Monday following bearish commentary on the hopes for the global high-technology sector from Deutsche Bank and the Bank of America.
Their comments helped drive the Philadelphia Semiconductor Index (Philadelphia:^SOXX - News), a mixed basket of chip makers and chip equipment manufacturers, down more than 5 percent to 236.19, a nearly-four-year low. The broader, tech-heavy Nasdaq (NasdaqSC:^IXIC - News) market fell below 1,200 on Monday, down about 3 percent to 1184.97, roughly a six-year low.
Virtually every stock in the 33-component Dow Jones European technology stock index (Zurich:^SX8P - News) tumbled. Stocks such as semiconductor camera equipment maker ASM Lithography (Amsterdam:ASML.AS - News; NasdaqNM:ASML - News) of the Netherlands fell about 10 percent and German memory chip maker Infineon (XETRA:IFXGn.DE - News; NYSE:IFX - News) lost nearly 7 percent.
The shares of U.S. contract manufacturing stocks were pounded by Deutsche's commentary on the sector, which was issued after a trip to plants in Asia. Particularly hard hit was Solectron Corp. (NYSE:SLR - News), down 13.7 percent at $1.70, a 10-year low.
Intel Corp.'s (NasdaqNM:INTC - News) stock lost 5.2 percent to trade at $14.13, a low last seen in Nov. 1996.
Deutsche Bank cut its rating on ASM (Amsterdam:ASML.AS - News) on Monday as it lowered revenue growth forecasts for the sector, citing their increasingly conservative outlook on new capital spending by the world's biggest chip makers in the Taiwan and elsewhere.
"We believe that after what was essentially an inventory-led initial recovery (from the lows of the third quarter 2001), the industry is switching back into a low-growth environment for the next four to six quarters," Deutsche Bank analyst Nicolas Gaudois wrote. He said his dimming view was based on recent trips to Asia and checks with sales distributors.
The bank now expects industry revenue growth of 2 percent to 6 percent in 2003, down from a previous forecast range of 11 percent to 13 percent. It said capital spending over 2002 would be flat.
FOURTH-QUARTER UNSEASONABLY WEAK
Deutsche Bank analyst Chris Whitmore, who follows the contract manufacturing industry, said in a separate note aimed at U.S. investors on Monday that demand was clearly weak.
"Nearly every meeting we attended suggested that demand across most major product categories is trending below typical seasonality," Whitmore said.
Whitmore's concerns focused on two categories where production shortfalls have wide-ranging impacts: personal computers and wireless telephone handsets.
He cited mounting evidence from chip foundries like Taiwan Semiconductor Manufacturing Co. Ltd.(Taiwan:2330.TW - News) and makers of the basic electronic chassis like First International Computer (Taiwan:2319.TW - News), also of Taiwan.
"PC related demand could be flattish to down" in the fourth quarter versus the third quarter, Whitmore forecast -- a sharp reversal from the historic seasonal pattern of surging fourth-quarter sales during the holiday season.
But he noted it was just too early to call whether the mobile phone handset market was also in trouble. Many of the basic components for the world's latest mobile telephones are manufactured in a belt running from Korea to Indonesia.
"In general, the handset suppliers we met provided a somewhat cautious view toward (fourth-quarter) production rates," he said. "However, we note that the real handset build begins in earnest in October and November."
But he said that while seasonal trends were weak, quarter-over-quarter growth still looked strong compared with sectors like large-scale telecommunications network gear, which has suffered for two years and shows little sign of pickup.
Also on Monday, Bank of America Securities analyst Mark FitzGerald cut his estimates for Applied Materials Inc. (NasdaqNM:AMAT - News), the world's dominant maker of semiconductor production equipment, also blaming weakness in Asia.
"The main problem remains the sharp fall off in the orders from the Taiwanese foundries," he said of TSMC and United Microelectronics (Taiwan:2303.TW - News), the world's No. 1 and No. 2 foundries, which build chips for many other companies.
"We think that UMC will cancel 60 (percent) of the orders outstanding. TSM will likely spend less than its $2.0 billion revised (capital expenditures) plan. Visibility on future business at the foundries has disappeared."
FitzGerald also said he saw new production declining toward the end of the year. His comments came a week after the chip equipment industry held a muted annual trade show in Taiwan.
In particular, the analyst warned that the introduction by the foundries of new capacity to produce the silicon wafers -- the basic material used to build computer chips -- will decline in the calendar fourth quarter.
Applied Materials shares ended off 6.2 percent at $11.20. |
