Chip stocks poised to remain charged in 2000
By Stephanie O'Brien, CBS MarketWatch
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NewsWatch
NEW YORK (CBS.MW) -- Semiconductor stocks should stay charged
up and switched on for the rest of this year as well in 2000, three fund
managers say.
The group led the list of the 10 best-performing industries for the past
three months until worries over Taiwan's earthquake and analyst
comments hit shares this week. See data.
"We've been bullish on the semiconductor sector
since the beginning of the year," says Rod Berry, of
San Francisco-based Elijah Asset Management, a
sub-advisor. Berry co-manages the Robertson
Stephens Information Age (RSIFX: news, msgs)
fund.
"One of the reasons we're very bullish right now is
because there's been huge underspending on capital
equipment by chip makers for past the past two or
three years," he says.
PC demand is still very strong, Berry says. A lot of
that is being driven by growth in the Internet. It will
also be fueled by the coming launch of Microsoft's
Windows 2000 software, he says.
"Windows spurs upgrades.That's going to drive
growth next year," Berry says.
Berry also says demand for more-sophisticated
data communications, such as wireless equipment,
will continue to fuel future profits for semiconductor
makers. Wireless equipment handsets have surpassed PC sales. That
demand is "sucking up a lot of chips," he says. "We believe these trends
will be in place for all of 2000," he says.
Influences abroad
Semiconductors are used in many products other than computers, such as
consumer electronics, medical diagnostic equipment and automobiles.
"There's more dollar value in the chips that go into many of the newer
models of cars than the value of the steel that's being used to make them,
Berry says. They're used to power radios, navigation systems, engine
calibrators and air conditioning systems
Berry also expects to see more demand abroad.
"Europe has been underspending in information
technology for years, he says.
While some industry analysts have expressed
concern about the impact of the recent earthquake
in Taiwan on PC and chip makers, Berry says the impact fairly minimal.
"There's enough inventory out there," he says.
Picks
Star performers have been Micron (MU: news, msgs)and Intel (INTC:
news, msgs).
He also likes the equipment makers.
"The area in semis that really started to move in the second quarter and
into the third quarter was chip equipment makers. The Philadelphia
Semiconductor Index, which contains many of those names, rose 31
percent in the second quarter, he says. It's up 55 percent for the year to
date.
Among the equipment makers, Berry likes are Applied Materials (AMAT:
news, msgs), Teradyne (TER: news, msgs), Novellus (NVLS: news,
msgs) and KLA-Tencor (KLAC: news, msgs).
Demand is also coming from upgrading the telecommunications
infrastructure, Berry says. "Everybody's scrambling to upgrade for
expanded bandwith.That chews up a lot of chips as well," he says.
An emerging segment in the industry is chip outsourcers such as PMC
Sierra (PMCS: news, msgs), Applied Micro Circuits (AMCC: news,
msgs) and Broadcom (BRCM: news, msgs), berry says. As technology
improves rapidly, some of the larger chip makers have found it expedient
to farm out orders for certain kinds of chips to keep pace with demand.
Steady growth
Pat Boyle and Steve TeSelle co-manager of the Icon (ICTEX: news,
msgs) Technology fund. In contrast to Berry, they don't own equipment
stocks.
"There are no semiconductor equipment stocks in the fund. They got way
too overvalued in July, TeSelle says. Semiconductors and
communications-equipment stocks make up about 65 percent of the
fund's portfolio, he says.
Among the managers' favorites are Motorola (MOT: news, msgs) and
Intel
"Last October, technology stocks were some of the worst performers.
We've since come out of that," TeSelle says. "One of the reasons they've
done better than maybe everyone expected is that everyone thought Asia
would go into deep recession and that tech spending would drop," he
says.
Also, demand in Europe is picking up, Boyle says."The worst fears
weren't realized," he says.
"Hardware companies have continued to sell machines and you need
semiconductors to do that. There was some concern on Wall Street about
the impact of price cuts prices on computers. But the American consumer
suprised people," he says, snapping up enough new machines to offset any
such worries.
"We see tech continuing to be a vital part of the U.S. and world economy.
But peoples' hopes and fears swing on a large pendulum," TeSelle says,
which can cause valuations to fluctuate dramatically, as they have in the
past year.
Nonetheless things look promising for the next few years at least.
"Right now there's optimism, and that's being priced into these stocks.
We see steady growth in tech well into the 21st century," the fund
managers say. |
