John, Further interesting reading.
Enjoy the weekend. Back on Monday.
Chips taste great, but only in long run
By Binti T. Harvey, CBS MarketWatch
Fri Mar 20 16:23:16 1998
LOS ANGELES, Calif. -- Investors found chips less filling Friday as analysts said it may take as long as a year for the sector to regain forward momentum.
A gloomy earnings outlook, profit warnings and anxiety about weakening demand combined to push semiconductor shares 2.5 percent lower Friday afternoon. Bankers Trust Alex. Brown analyst Erika Klauer cast a cloud over the sector when she forecast weak earnings results from semiconductor companies in the current quarter. Klauer cited oversupply, pricing pressure and PC makers' inventory reductions as well as the industry trend toward build-to-order manufacturing.
Klauer expects particularly weak reports from chip manufacturers for the PC and cellular markets. However, the analyst recommended selective investment in linear integrated circuits, digital signal processors and programmable logic.
Klauer's report followed similarly discouraging forecasts from other leading chip analysts. Last week, Thomas Kurlak of Merrill Lynch said overcapacity and unfavorable trends in the PC industry will extend the industry's malaise throughout 1998. Kurlak expects PC-driven demand to dry up, leaving traditional leaders such as Intel, AMD and National Semiconductor floundering. "Intel, AMD and Micron will have a lot of work to do to re-orient themselves," Kurlak said.
Many analysts have lowered earnings forecasts for chip makers such that profits are now expected to fall 29 percent in the first quarter, compared with previous forecasts of flat or marginally higher profits. "Back in October and November, when we first heard about the Asian situation, we thought we'd have two more quarters of good performance, but now we're expecting no upside surprises at all," said Chris Chaney, semiconductor analyst for A.G. Edwards.
Robert Van Securities analyst Steven Singleton said, "I don't expect any positive news until the fourth quarter at the earliest, but probably not until 1999." Singleton says that as long as the spectre of Asia's crumbling economy remains, the sector will remain under pressure.
However, analysts agree that chips with applications beyond PCs continue to hold promise. Companies with the broadest range of products and greatest growth potential include Texas Instruments, Xilinx, and Analog Devices, says Chaney, who recommends investors take advantage of current weakness in these stocks.
While analysts say now is not the time to invest in semiconductor stocks, they continue to recommend the sector as a long-term investment proposition. Consequently, the burning question for investors is when to jump in and buy. Most analysts agree that the stocks will likely take another hit as the Japanese fiscal year ends in March, and reach bottom in the summer.
"If your horizon is a year or more, buy now, but if you're looking for a short-term return, it's still too early to get in," said Singleton. |
