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Chip price plunge shocks stocks
Key analyst cites Intel pressure; AMD warns of loss
By Binti Harvey, CBS MarketWatch
Last Update: 6:37 PM ET Feb 4, 1999 NewsWatch
NEW YORK (CBS.MW) -- Semiconductor and computer hardware stocks tumbled on Thursday as concerns mounted that a price war in the chip industry will eat into earnings potential.
Intel (INTC) is leading the race toward lower prices by launching an aggressive pursuit of low-end PC market share, Merrill Lynch chip analyst Thomas Kurlak said. As a result, Kurlak decreased his 1999 earnings forecast for Intel and downgraded shares of rival chip-maker Advanced Micro Devices (AMD).
Late in the trading session, AMD reportedly said it may incur a first-quarter operating loss in wake of the intense pricing pressure concentrated in the low-cost computer market, the core customer base for AMD's low-end chips. See related story.
Intel shares tumbled 8 9/16 to 130 1/8, while AMD dropped 2 before being halted shortly before the closing bell at 18 15/16.
The negatives dogging chip stocks led many top-tier computer hardware issues, including shares of Dell (DELL) down 5 1/2 to 102 3/8, Compaq (CPQ), down 2 3/16 to 45, International Business Machines (IBM) down 5 11/16 to 169 9/16 and Apple (AAPL), down 2 5/16 to 37 7/8. Hewlett-Packard (HWP) shed 3 1/8 to 75 3/8 after PaineWebber lowered its rating to "attractive" from "buy."
The semiconductor price scare only exacerbated lowered expectations surrounding a seasonal PC slowdown. Piper Jaffray analyst Ashok Kumar confirmed that slowing demand accounts for some of the chip price declines.
"Adding to the gravity of the situation, our channel checks indicate that K6-2 400 MHz based Compaqs, priced at about $1,500, are not selling well," Kumar said. He also noted that while Gateway plans to use AMD chips in PCs sold in Japan, those units will amount to less than 10 percent of Gateway's computer sales.
Merrill's Kurlak lowered his investment opinion on AMD to "neutral" from "accumulate," citing lower-than-expected average selling prices for the company's K6 microprocessors in the current quarter. Kurlak said in a research note he expects average selling prices for AMD chips to be the same or below the $89 level reported in the fourth quarter.
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