Analysts Hint at Bounce in Chip Stocks
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<<NEW YORK, Aug 26, 2004 (AP Online via COMTEX) -- Despite the beatings chip stocks have endured during the past few months, some analysts on Thursday hinted a bounce might lurk behind a sector whose shares have been punished on concerns customer demand has withered.
The once high-flying sector has seen shares move decidedly lower in the past month as investors reacted to news that many of the industry's key players are seeing higher inventories. The Philadelphia Semiconductor Index, a key barometer of the sector's health, hit a new 52-week low last week.
But, as November approaches - traditionally one of the biggest months for semiconductor manufacturing - some analysts suggest the current period might be the prelude for a sectorwide upswing. A pair of research reports released in the past two days suggest the market might have already peaked, but demand is still out there.
Banc of America Securities analyst John Lau told clients in a report that a mix of excessive inventory, slow economic growth, terrorism concerns and high oil prices caused the chip sector to peak earlier than expected. He cut his rating on Advanced Micro Devices Inc. to "neutral" from "buy," and slashed price targets on Intel Corp., Texas Instruments Inc., Broadcom Corp. and Micron Technology Inc.
"We believe that investors are reacting earlier and more proactively in discounting the semiconductor cycle peak than prior cycles," Lau said in a report. "Although stock prices have come down significantly and currently appear to be inexpensive, we would not be aggressive buyers yet given that estimates for 2005 will likely be revised downward over the next few months."
However, he said there are "opportunities for investors with long-term horizons" and buying industry-leaders such as Intel or Texas Instruments would be a safe bet. Many companies will be giving sales updates during the coming weeks, and that might provide more insight as to when the sector might truly begin to bounce back, he said.
At midday, shares of Intel traded down 14 cents at $21.81, Texas Instruments Inc. was down 2 cents at $20.01, Applied Materials Inc. was down 29 cents at $15.97, Novellus Systems Inc. dropped 61 cents at $24.53, Broadcom was down 61 cents at $29.20, and Micron fell 26 cents at $11.77.
Research firm Gartner Inc. said chip revenues remain strong despite concerns about rising inventories, which it believes might be overblown. The company now forecasts a 27.4 percent increase in 2004 global chip revenues to about $226 billion, up from a February forecast of $217 billion.
"Had the increased inventory been accompanied by a flat or even falling semiconductor market, it would have been of grave concern," Gartner said. "In a rising market, increasing inventory levels are normal."
Investors were spooked recently when a number of chip companies reported rising inventories. Intel, the market leader, said inventories had grow 15 percent and cut its profit margin forecast.
Gartner suggested the increase in Intel inventory was because the company was able to make more during the past six months - not because the bottom was dropping out of the market. The research firm suggested in a report that seasonal demand is expected to rise at the end of the third quarter and start of the fourth - and that could help lift share prices out of the current sluggishness>> |
