Hey Paul,
Copied this post (from a person named joe arena) from the motley fool thread on aol. Thought is was interesting and wondered if you thought this person had a reasonable insight into the semi world and into Intel, or if you thought he may be way off in his thoughts that the Xeon is not going to be enough to get Intel back to decent growth anytime soon?
Thanks for any opinions, as usual.
pigboy
<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
Subject: Semiconductor Update
Date: Tue, Jul 7, 1998 18:26 EDT
From: <A HREF="aol://3548:JArena3773">JArena3773</A>
Message-id: <1998070722265000.SAA04087@ladder01.news.aol.com>
With the comments of influential analyst Robert Chaplinsky driving a rally in the SOX today, it should be asserted once again that investors should not attempt to pick the bottom of the current semiconductor industry downturn.
While some signs of a bottom have become apparent, the SOX could take another 6 months to a year before anticipating a recovery.
As I have previously discussed, the major catalyst which will propel the industry out of it's doldrums is the conversion to 300mm wafer processing.
With each passing day, it becomes more apparent that this conversion could be delayed for up to another year. First of all, semi equipment suppliers have delayed their 300mm initiatives as they attempt to slash costs in an extremely difficult market environment exacerbated by the situation in Asia.
Of equal importance is that 300mm systems which are currently being assessed by Sematech have not met expectations in terms of processing capability, throughput, and reliability. Consider also that about six months ago, there were 11 semiconductor companies which had committed to begin ramping up 300mm wafer processing in 1999. Currently there are only three. Also bear in mind that the chip equipment book to bill ratio has now declined for six consecutive months. The best prediction at this juncture is that this equipment will not be ordered until sometime in the first quarter of 2000, and volume ramp up will not occur until 2002.
For those who are looking to pick a bottom in AMAT, LRCX, NVLS, KLAC, it would be prudent to wait for further indications of a turnaround. While much if not all of the industries problems are discounted in the current prices of these stocks, the opportunity costs could be the biggest risk of holding them over the next year. While it is true that nobody ever broke a leg jumping out of a basement window, it is also true there are very few bottom
fishers driving a Mercedes.
The only compelling growth that can be played right now is the DSP business. Although TXN now faces new competition in this business from IBM and LU, the growth here will be significant to sustain more than one major player.
Although TXN's DSP business has not been immune to the industry slowdown, this industry is still on track to grow to $8 billion by the year 2000, and $50 billion by 2008. Thus, while the business will become commoditized over time, and TXN will probably not retain it's 45% share, the growth potential here is too substantial to ignore. The bottom line here is that as we move into a world where embedded microprocessors replace the current PC Centric paradigm, TXN is still in an enviable position to capitalize on this.
Regardless of this, with the entire semiconductor industry in a state of disarray, TXN stock is still susceptible to short term weakness. I maintain my strategy of shorting out of the money TXN Leaps puts, and using the premiums to buy stocks with more compelling short and long term growth potential such as msft and csco. When investing in high tech, always use the strategy of buying the companies that are selling the bullets when there is a war going on. MSFT and CSCO are the two best examples of this. TXN will be selling bullets as well, but will have more formidable competition, thus increasing the risk.
INTC update: I have decreased 2000 estimates to $3.80 per share, and have lowered 1999 estimates to $3.40 per share. I also maintain 1998 estimates of $2.90 per share. The bottom line is that unit volume growth will remain insufficient to offset declines in ASP's. In addition, the penetration of Xeon in the server and workstation market will also not be able to offset the accelerating decline in ASP's.
FOR ANYONE WISHING TO GET ON MY FREE E-MAIL LIST, THE OFFER IS STILL OPEN.
DISCLAIMER: This does not constitute a recommendation to buy or sell
securities, but is intended for informational purposes only.
Joe Arena
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> |
