Jim, after it splits, the swings should get smaller. OTOH, in this crazy market, and with these crazy chip stocks, who knows? One stock I have is swinging wider, it seems, after it split. That's LSI.
Tony
edit, pretty good article from the San Jose Mercury News today.
mercurycenter.com
Posted at 1:00 a.m. PST Friday, March 10,
2000
Chip prospects
and stocks are
soaring
BY TOM QUINLAN
Mercury News Staff Writer
Forget dot-com mania. If you want to take a flyer on
a high-priced technology stock, invest in a chip
company.
After suffering through a three-year depression, the
cyclical market for semiconductor stocks was due
for a sharp upturn last year, but few could have
predicted just how fast and far those stocks would
climb.
In the past year, shares of memory chip designer
Rambus Inc. have soared 422 percent, from $72.75
to a current price of $379.43. That gives the stock a
price-earnings ratio of 1045, which means investors
are paying $1,045 for every dollar of profit that
Rambus is currently making.
That's astounding in a 50-year-old industry where a
PE ratio of between 30 and 45 was considered
exceptional.
And Rambus -- which is just beginning to reap the
rewards of its advanced memory designs -- isn't the
only semiconductor company that's looking like an
Internet stock.
Cypress Semiconductor's stock has gone up by more
than 445 percent in the past year. LSI Logic's shares
have increased by 423 percent. And the stock of
Broadcom Corp., a maker of high-speed
communications chips, has shot up a remarkable 605
percent.
``I don't know if I would say that the market is
irrational right now,' said Terry Ragsdale, a
financial analyst with JP Morgan. ``Certainly it's a
lot harder to explain right now.'
Ragsdale said the main thing pushing semiconductor
stocks higher is the same thing that's always driven
those stocks upward: demand is outstripping supply,
driving chip prices up. ``That's going to be the case
for at least the rest of this year,' he added.
One of the biggest winners has been National
Semiconductor Corp., which announced Thursday
that it had returned to profitability, posting net
income of $327.8 million on sales of $548.9 million
for its third quarter, including a one-time $228
million gain. National's stock has been rising
steadily since last March, increasing in value by
more than 637 percent over the past year.
Even chip giant Intel Corp., which is generally
insulated from the most volatile market swings by its
mammoth size and wide product line, has seen its
stock go up by 92 percent in the last year.
Stock prices for semiconductor equipment
manufacturers are also zooming. Applied Materials
has seen its stock increase by 183 percent over the
past year, to $190.31. LAM Research, hard hit
during the Asian economic crisis, has seen its stock
price go up by 325 percent over the last 12 months.
Compare that to leading dot-coms such as Web
portal Yahoo Inc., which went up 107 percent, or
online retailer Amazon.com, whose shares rose 4
percent. Even software titan Microsoft Corp., the
most valuable company in the world, is up just 20
percent over the last 52 weeks.
It's impossible to predict how long the market's
infatuation with chip stocks will continue.
But industry experts say chip sales, which ultimately
underlie the stocks' prices, should remain strong for
several years.
Market research firm Forward Concepts Inc.
estimates that the market for digital signal processors
-- a type of programmable chip widely used in
devices like cell phones and television set-top boxes
-- will have a compound annual growth rate of 32.8
percent between 1999 and 2004, with the market
growing from a $4.3 billion market to an $18 billion
market.
The dollar value of the memory chip market, which
declined dramatically in 1997 and 1998 to less than
$20 billion, is expected to grow to a $60 billion to
$70 billion market by 2003.
``Certainly we see very strong demand,' said Chuck
Mulloy, a spokesman for Intel, which makes
microprocessors for personal computers as well as
other chips.
In addition to strong growth in PC sales, Intel is
seeing demand in new product categories, such as
Internet access devices. ``The demand for
semiconductors is broadening out,' Mulloy said.
``Some of these product categories didn't even exist
two years ago.'
Historically, chip stocks have moved cyclically, in
tandem with chip supplies. Demand races ahead of
supply as new markets open up for silicon
components, driving prices up and costs down. Then
the industry starts making so many chips that prices
drop, eventually sending stock prices plummeting.
Now the market is acting as if that traditional cycle
has been broken.
``Some of these valuations reflect a price-to-fantasy
ratio,' joked Ashok Kumar, a securities analyst at
U.S. Bancorp Piper Jaffray. ``Investors are looking
for high-growth stocks, and they're putting their
money in high-tech. This is a spill-over from the
dot-com market.'
Not surprisingly, most of the companies that have
seen the biggest jump in stock prices tend to discount
the idea that their companies are overvalued.
``As a matter of policy, we don't have any opinion of
the valuation of our company at any point in time,'
said Geoff Tate, chief executive of Rambus. ``But I
think investors are paying attention to some of the
announcements we've made recently.'
``This year, we've seen Intel introduce products that
support our memory products, Sony just introduced
its Play Station II in Japan (using the Rambus
memory design) and some market research
companies predict that (the Rambus design) will
make up 50 percent of a $60 to $70 billion market by
2003,' Tate added.
And unlike the dot-com start-ups, Mountain
View-based Rambus has been profitable since it
went public in 1996. ``I like to say that we were the
last old-fashioned IPO, in that our bankers made us
show a profit before they took us public,' Tate said.
In the same way, Photon Dynamics attributes the
1,140 percent increase in its stock price over the last
12 months to investor recognition of the leading
position that the San Jose-based company has in
making testing and measurement equipment for liquid
crystal displays -- the screens used for portable
computers, flat panel digital televisions, and e-mail
ready cellular phones.
And according to some observers, the increasing
demand for semiconductors for a whole range of
products -- cars, stereos, cameras, washing machines
and refrigerators -- is reshaping the semiconductor
industry.
``There are a lot more markets for semiconductors
today than there was 10 years ago,' said Nathan
Brookwood, founder of the market research firm
Insight64. ``It used to be almost entirely driven by the
PC market. Now the cellular phone industry is going
gangbusters and is capable of driving the
semiconductor market itself. When a cycle goes
down in one sector, its going to be less noticeable
because some other market segment might be doing
great.'
Whether the runup in stock prices for semiconductor
companies is justified or not, few are suggesting that
it's about ready to end.
Staying invested is probably less risky than getting
out too early, Ragsdale suggested.
``I think its better if investors get out late than if they
get out too early,' he noted. ``Even if they wait until
the stock loses about 25 percent of its value before
they sell, that's better than leaving money on the
table.'
Contact Tom Quinlan at tquinlan@sjmercury.com
or at (408) 271-3667.
¸ 2000 Mercury Center. The information you receive online from Mercury Center is
protected by the copyright laws of the United States. The copyright la |
