From TSC - Edelstone on Semis ....
Edelstone raised his price targets on eight semiconductor stocks Tuesday.
The Ax: Edelstone Is Getting Buoyant on Semis in '99
By Eric Moskowitz
Staff Reporter
12/8/98 3:31 PM ET
Who are you going to believe?
That's the question facing semi stock investors as the industry heads into 1999, which analysts promise will be the best year since 1995. Of course, analysts made similar projections last year as well.
But this time it seems as if investors have a number of positive indicators to justify their bullishness over the last two months, which has seen the Philadelphia Stock Exchange Semiconductor Index shoot up 85%. Stabilizing PC average selling prices, key analysts and the latest industry data seem to indicate that this year's second quarter was indeed a "trough" for the entire industry, as TSC's ax, Morgan Stanley's Mark Edelstone, has been saying for some time now.
Edelstone raised his price targets on eight semiconductor stocks Tuesday, including Intel (INTC:Nasdaq), which he has been pounding the table for since the spring. "We believe the industry is in the early part of a multiyear cyclical expansion," Edelstone told TheStreet.com. "We believe revenues for the overall semiconductor industry will grow 8% to 10% sequentially in the fourth quarter." Edelstone also sees that January will mark the first month where the industry will have a year-over-year increase in revenues. "By the second quarter of 1999, we expect to see a 15% to 20% year-over-year increase," he adds. The SOX was up 10 points, or 3%, to 360 Tuesday morning.
Edelstone's yearlong nemesis, Merrill Lynch's Thomas Kurlak, continues to express caution about revenues next year. Kurlak points out that total semiconductor unit sales in October were down 4.2% from last year, which is a larger decline than the 2.1% drop in September. "The stocks are up on a spike with seasonally higher PC sales," Kurlak wrote this morning.
Kurlak also included some particularly pointed advice for those looking to get into this semiconductor run at this point. "We are probably at the apex of seasonal consumer demand right now. It seems to us to be foolhardy to buy most semiconductor stocks." Kurlak wasn't immediately available for comment.
But Kurlak isn't the ax anymore. His thinking jibes with Edelstone and, for that matter, the rest of the Street, which also was busy raising estimates Tuesday. Milind Bedekar, an analyst with Salomon Smith Barney, raised his price targets for semi-equipment plays Applied Materials (AMAT:Nasdaq) and KLA-Tencor (KLAC:Nasdaq). Bedekar has strong buys on the two stocks. His firm hasn't done any recent underwriting for Applied Materials, but it has done some for KLA-Tencor in the last three years.
Kurlak's opinions are still crucial, primarily because he has been a perennial Institutional Investor all-star, and he could still be right in an against-the-grain sort of way if demand stabilizes after the holiday season and doesn't continue to ramp.
But the facts speak for themselves. The latest data coming from the Semiconductor Equipment and Materials International showed an increase in its closely followed book-to-bill ratio from 0.57 in September to 0.73 in October. A book-to-bill of 0.73 means $73 in orders were received for each $100 worth of products shipped. While the ratio is not above 1, which is where a healthy book-to-bill ratio should be, the result is the first increase in the ratio all year. The book-to-bill, which measures U.S.-based semiconductor production equipment suppliers, stood at 0.97 in December 1997.
A ramp in demand is not only good news for some of these beleaguered semiconductor and semi-equipment companies, but for PC stocks as well. All of the major PC stocks, excepting Apple (AAPL:Nasdaq), were up significantly Tuesday at 1 p.m. "We believe that if we have a benign PC pricing environment, revenues in the industry will continue to accelerate," says Edelstone.
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