Chip investors polarized on meaning of stock slump
Tuesday June 15, 3:04 pm ET
By Daniel Sorid
SAN FRANCISCO, June 15 (Reuters) - A split between the bulls and bears of semiconductor stocks is widening, with one side viewing a five-month slump as a buying opportunity and the other seeing it as a tip-off to sell.
Chip stocks have fallen 15 percent from January peaks, despite record sales and improved forecasts for future profit. While the dips have lured some investors back into the stocks, others have said the shares' inability to hold onto gains suggests that their best days are now long gone.
The Philadelphia Stock Exchange semiconductor index (Philadelphia:^SOXX - News) rose 1.2 percent on Tuesday, recovering from a 2.3 percent dip on Monday.
Investors who follow the boom-and-bust chips sector always play a game of timing, getting in before the next explosion of demand, and getting out before too many players are making too many chips, and inventories build.
When the bust hits, stocks fall hard as demand drops off.
The investment research arm of Swiss bank UBS (UBSN.VX) last week declared that the time to start looking for the exits is now. The group's team of global chip industry analysts downgraded their rating on the industry to "neutral" from "buy," saying that industry revenue growth rates have peaked.
The firm also raised the specter of three warning signs that portended the last great semiconductor stock crash in late 2000: growing inventories, higher uncollected sales payments, and fast-growing expenditures on chip-making equipment.
None of those warning signs have reached "danger" levels, the group said, but some signs -- like increasing inventories at Intel Corp. (NasdaqNM:INTC - News), the world's largest chip maker, and STMicroelectronics (Paris:STM.PA - News), Europe's biggest chip maker, -- are worth "watching closely."
POSITIVE SIGNS, AS WELL
Other signals are not nearly as negative on the sector. The Semiconductor Industry Association, the trade group for U.S. chip makers, last week raised its 2004 global sales forecast to a record $214 billion, and predicted a "soft landing" for the industry in 2006, with sales falling only 1 percent.
Jim Grossman, who manages the AAL Technology stock fund for Thrivent Financial for Lutherans, sees the brighter side of these mixed signals. Semiconductor companies are in the midst of a far more rational and better-paced expansion that shows no signs of ending any time soon, he said.
The stocks, he said, will keep rising as corporations plan spending increases on computer hardware. The sell-off this year was an overreaction to the strong growth chip stocks showed last year, but chip stocks deserve more than that single year of growth, he said.
"I just can't see how it ends like this, just boom and bust," he said. "I'm still overweight semis and I'll stay that way."
Some investors are passing over industry-level indicators and basing their semiconductor investing plans on expectations for a broad economic expansion.
Marshall Front, the chairman of Front Barnett Associates, which has $1.4 billion in client assets under management, compares the economic importance of semiconductors in the early 21st century to the internal combustion engine of the last century.
"I think that if you continue to have an expansion in global economic activity, semiconductors are really at the heart of that," Front said. "There may be a pullback in the stocks if enough firms on Wall Street concluded the same thing (as UBS), but my guess is the pullback will be moderate and short term."
Louis Navellier, a stock commentator and president of money manager Navellier & Associates, said he has been selling semiconductor stocks because of their increased volatility, but said he wouldn't be surprised if the shares ran up as much as 30 percent by the end of the year.
Next year, however, changes in tax incentives related to depreciation could put a damper on corporate technology investments, and semiconductor shares, he said, could suffer.
"It looks great between now and the end of the year, and then we'll sweat afterwards," he said. |
