"Despite recent gains, semiconductor stocks are expected to suffer "
"But don't be fooled. These semiconductor stocks are still
in for a rough ride. Indeed, the near-term outlook for the
group took on a bleaker tone Thursday when Merrill
Lynch analysts once again adjusted down their
expectations for the stocks.
In a conference call with brokers and money managers,
Merrill Lynch analysts Tom Kurlak and Robert Stern
notched down their expectations for the sector's
performance in 1998.
Kurlak, who covers semiconductors for Merrill Lynch,
says weak demand and overcapacity mean things are
going to get worse for the sector before they get better.
He says the group will test new lows sometime soon, after
having recovered somewhat from the last selloff that
peaked in December.
"The semiconductor makers are grudgingly accepting the
fact that there is a slowdown," says Kurlak. "And they are
holding out for recovery in the second half. But we are
doubtful about that because of a worldwide slowdown
this year."
Part of the problem is a slowdown in demand for the
products that use chips and, Kurlak cautioned, little
reduction in capacity going on. What's more, he said,
many of the big Korean chip makers plan to aggressively
exploit the weakened Korean currency to increase their
global sales.
Stern, who covers the companies that make equipment
used to produce chips, says he now expects growth of
only 0% to 5% for the year, down from his previous
forecast of 5% to 10%. U.S. companies like Texas
Instruments (NYSE: TXN) and Motorola (NYSE: MOT)
plan to spend more on chip equipment. But that will be
more than offset by a slowdown in spending by Asian
companies.
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