ML has appointed a bull
After reaching record territory this morning, the Nasdaq turned south. But if you believe Merrill Lynch, fears about
declining PC prices weakening the chip market are overblown.
Late Tuesday, Merrill Lynch issued earnings previews for a few technology groups. Chip analyst Joe Osha, who
succeeded the outspoken Tom Kurlak, said that he expects earnings to be strong. "We expect the March quarter
earnings for the semiconductor business to be upbeat," Osha said, mainly because of the recovery in chip prices. He
sees revenues at chip companies increasing by about 10% this year, with communications-equipment continuing to
drive demand. The analyst said persistent worries about declining PC demand are overblown. "In fact, we believe that
the continuing decline in ASP [average selling prices] for microprocessors will drive unit demand for microprocessors in
1999, [which] will be stronger than most forecasters currently expect," said Osha in a report.
Intel should benefit from declining PC prices, Osha said. "Our $4.73 per-share earnings estimate for all of 1999 reflects
our belief that falling PC prices will stimulate stronger unit demand than anyone currently expects." Osha expects chip
giant Intel to meet his first-quarter (ended March) earnings estimate of $1.10 a share on $7.3 billion in revenue. The
company earned 81 cents a share during the same quarter a year ago. Level One Communications (LEVL), which
has agreed to be acquired by Intel, should also report solid quarterly earnings, Osha said.
Osha expects SmartMoney pick Vitesse Semiconductor to report fiscal second-quarter earnings of 21 cents a share.
The company earned 16 cents a share during the same quarter a year ago. The analyst predicted that Vitesse's
backlog of orders will decline relative to its sales as it ramps up a new fabrication plant, but this is not a concern. "The
company's backlog had arguably grown so large in 1998 that [it] was causing customers to look elsewhere," he
explained.
However, the picture isn't so bright for Advanced Micro Devices, which changed its scheduled earnings report from
Wednesday until April 14 after the close. Osha forecasts that AMD will report a loss of 72 cents a share in its first
quarter, substantially lower than the consensus estimate of a loss of 56 cents a share. "Some Street estimates are still
failing to account for the fact that AMD will not be able to take any tax credits this quarter, which will result in the full
pretax loss number hitting bottom line and earnings per share," Osha explained. MR |
