Silicon Valley: Look Before You Dip into Chips
By Marcy Burstiner
Staff Reporter
11/5/98 10:22 AM ET
SAN FRANCISCO -- A month ago, most semiconductor stocks were in a slump. Then suddenly nearly every chip stock caught fire, which meant investors had to decide quickly whether to jump into this rally. But which stocks to buy and which to dump? Tech fund managers say this isn't the time to go pell-mell into chips.
Much of the run-up has come from an overreaction to a few twinklings of recovery in the long-ailing semiconductor industry. When things looked bleak, people went running from chip stocks. Now the other kind of panic is setting in -- the panic of being left out of a surge.
The Philadelphia Semiconductor Index rose 5% yesterday to 269.9, pushing it up 42% since the chip rally began Oct. 8. That easily outstrips the Nasdaq Composite Index's 28% rise and the S&P 500's 16% gain in that period.
"They're rocking and rolling," says portfolio manager Jeff Wrona of the chip stocks in his $300 million PBHG Technology & Communications fund. Wrona's holdings include TranSwitch (TXCC:Nasdaq), which is up 84% since Oct. 8, and Linear Technology (LLTC:Nasdaq), up 47%.
How long can the good times last? "I think it's sustainable over a reasonably short time period," Wrona says. Bob Finch, portfolio manager at Aeltus Investment Management, agrees. Finch bought chip stocks such as Xilinx (XLNX:Nasdaq) two months ago. Xilinx is up 47% since then, but Finch is hardly encouraged to buy more now.
"I'd like to see some business improvement before I buy in large positions," Finch says. "I'd like to see orders getting better rather than people walking around trade shows with 40% to 50% capacity talking about how things aren't getting any worse."
Many fund managers are responding to the surge in chip stocks with good, old-fashioned inaction. "We're sitting tight at the moment," says Richard Burridge, chief investment officer of the Burridge Group. Burridge's funds are long Texas Instruments (TXN:NYSE) and Novellus (NVLS:Nasdaq), but he won't add any more just yet. "We've taken a look at Vitesse (VTSS:Nasdaq), but the stock ran up so fast it got away from us," Burridge says.
What will it take to renew interest among fund managers? In addition to the improvement in chip orders Finch mentioned, money managers say they'd like to see recoveries in Asian economies and more economic growth in the U.S.
And should tech fund managers start itching to trade in chip stocks, Jurika & Voyles portfolio manager Nick Moore has a suggestion. "It's a beautiful time to sell your junk," says Moore, who points to companies such as graphics chip maker S3 (SIII:Nasdaq). S3 last traded at 4 1/4.
For more info on institutional holders of these stocks, as well as financial statements and earnings estimates, please see the Thomson Company Reports.
See Also
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SILICON VALLEY ARCHIVE
Transwitch
Company Quotes
Linear Technology
Company Quotes
Xilinx
Company Quotes
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