Old news to most of us but here it is from Tom K. Still have my order in for IDTI tho currently set at 10 1/8. Looking for a fill early next week. Lowered it from 10 3/8.
Weekend, May 16-17, 1998
Once again, Tom Kurlak's comments slam chip sector
The problem: "The majority of the market over the next
five or ten years is likely to want simple computers
to do simple tasks."
by Michael Brush
The sub-$1000 personal computer may be great for
consumers. But it has been rough on the companies
making components - like chips -- that go into it.
Add to the cheap PC's popularity a glut of
microprocessors created by increased capacity and
slower sales, and it will be hard for chip makers to
see much of a gain in sales or profits this year.
Their equipment suppliers will suffer, too.
That's according to Tom Kurlak, Merrill Lynch's
influential chip sector analyst, who shared his view
in a conference call with investors Friday.
News of Kurlak's comments helped push Intel (NASDAQ:
INTC) stock down over $4 to close at about $80 Friday
in heavy trading. Shares of Advanced Micro Devices
(NYSE: AMD) and National Semiconductor (NYSE: NSM)
also traded about 10% lower on heavy volume.
Kurlak says the glut will be caused in part by a ramp
up in production this year at the major chip makers:
Intel; Advanced Micro Devices and International
Business Machines (NYSE: IBM), which make the K-6
chip; and National Semiconductor, which has teamed up
with Cyrix (NASDAQ: CYRX). This build-out will
increase overall capacity by over 50% to 150 million
units by the end of this year. But PC makers will only
need about 115 million , according to Merrill Lynch
estimates.
That's not the only thing that will hurt the chip
makers. They are also getting less money for each chip
they sell, on average, because the growing market for
cheap PCs is forcing them to reduce prices. "The mix
continues to shift towards low-end product, and this
drives the average selling prices down for the
microprocessor producers," Kurlak said on the call.
"So it is not a good trend."
Another problem for the chip makers is a slowdown in
demand for their product. Semiconductor sales in March
dipped below sales the month before by about 1%, and
were 5% below the same month the year before, says
Kurlak. Only eight months ago, the industry was
enjoying 20% year-over-year growth.
"We think it is pretty unlikely there will be any
growth in 1998. And the debate now is whether it will
be negative by 5% or 10%," says Kurlak. "With the
complications created by a glut developing in the
microprocessor market, and a continuing glut in the
DRAM market, there is not much chance of improvement
in overall industry sales and profits in the second
half or early 1999. It's possible sales and profits
will be lower in the second half than in the first
half."
To keep profits growing, chip makers will have to find
new markets where they can sell higher-priced
processors in large volume.
Kurlak says he doesn't see any relief from leveling
off in the popularity of cheap PCs among consumers.
The market share of low-end PCs has gone from zero to
27% in 12 months, and it could soon reach as high as
50%, he says. "It's not likely to stop here, with this
much momentum."
Why not? Because from here on out, Internet use will
drive sales of new PCs, as opposed to new software
apps that need more computing power -- the trend that
has driven sales of new PCs in the past.
"The Internet is increasingly being used as a
communications tool, and the appliance required to get
on the Net is relatively simple," says Kurlak. "We
don't believe the bulk of the market is going to
continue to become more complicated and propeller
head-like. The majority of the market over the next
five or ten years is likely to want simple computers
to do simple tasks."
Marketwatch for Friday, May 15, 1998 |
