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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: Dr. David Gleitman who wrote (23636)	6/25/2000 11:04:00 PM
From: Dealer	Read Replies (2) \| Respond to of 35685

SNDK--RMBS--BRCM--PMCS--Communications Chips Drive Growth Unknown Comtex Source - June 25, 2000 07:52 New York, Jun 24, 2000 (123Jump via COMTEX) -- Early this week, the Semiconductor Equipment and Materials International (SEMI) reported that, pertaining to the North American semiconductor equipment industry, the May book-to-bill ratio stood at a preliminary 1.30. This is down from 1.46 in March, followed by 1.37 in April. This is clearly a downward trend, but is it something to worry about? Hardly. And here is why. To start with, as early as December 1999 the ratio stood at 1.19, which means that for every $100 worth of shipments, $119 worth of new orders was received. Most importantly, the demand variables are simply too strong right now. The semi industry is cyclical. The primary reasons for the latest downturn, which began in 1995-1996, were overcapacity and reduced demand. At the end of 1995, chip vendors built up inventory in expectation of a rise in PC demand spurred by Windows 95. It never materialized. This resulted in channels stuffed with inventory and, of course, less capacity utilization. This is a classic problem in the semi industry. When times are good, producers invest, and lots of times they overbuild. Then the demand/supply phenomenon kicks in. Boom follows bust and vice versa. Huge capital investments are needed up front, which means during boom times vendors benefit from operating leverage, while during bust, fixed cost becomes a liability. The current boom started at the end of 1998. It is characterized by both technology and capacity buys. Chipmakers are transitioning to 0.15-micron, 300-mm wafers. They are also replacing aluminum with copper on a chip. At the same time, they are adding new capacity. Technology buy typically is smaller in scale than capacity buy, which is spurred by the demand side of the equation. And this is where the real strength lies. Unlike in the past when the semi industry was pretty much subject to the vagaries of PC demand, growth is coming from new quarters. Though PCs still consume almost half of all chips produced and have been responsible for the industry's cyclicality since their sales are seasonal and tied to the ups and downs of the economy, the new drivers of growth are communications-related. The top sources are networking, wireless and the Internet. These are emerging industries, which are growing at a far more rapid rate than the comparatively mature PC industry. The Semiconductor Industry Association projects that the industry will grow at a CAGR of 20% to $312 billion through 2003. Revenues were $148.9 billion in 1999 and are expected to grow 31% this year. Some pockets are going through a supply crunch. Flash memory, for example. Demand is so strong that vendors such as SanDisk Corp. (NASDAQ:SNDK) and Silicon Storage Technology (NASDAQ:SSTI), which both supply data storage, are having a hard time coping. Intel Corp. (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD) and Atmel Corp. (NASDAQ:ATML) provide code storage, which is used to store programs and codes. Data storage is used in applications such as digital cameras, digital audio players and smart phones, which are all growth areas. DRAM is another area where vendors are benefiting from supply/demand imbalance. Micron Technology (NYSE:MU), the second-largest DRAM producer, just reported a blockbuster quarter. Sales more than doubled to $1.8 billion. Prices, ever so volatile, are showing signs of firmness as well as stickness. PC demand is strengthening at corporations, which had to divert their IT spending to Y2K-related issues last year. Furthermore, Windows 2000, which is best run with 128-Mbytes of DRAM, could spur more growth. PCs account for 60%-65% of Micron's chips. The company should have at least a few more quarters of robust growth. Other companies to keep an eye on include Texas Instruments (NYSE:TXN) in digital signal processors; TriQuint Semiconductor (NASDAQ:TQNT) and Vitesse Semiconductor (NASDAQ:VTSS), which produce high-speed gallium-arsenide chips, in communications; Applied Micro Circuits (NASDAQ:AMCC) and PMC Sierra (NASDAQ:PMCS) in networking and communications; Altera Corp. (NASDAQ:ALTR) and Xilinx Inc. (NASDAQ:XLNX) in programmable logic devices; Rambus Inc. (NASDAQ:RMBS) in memory interface; Analog Devices (NYSE:ADI) in analog chips; and Broadcom Corp. (NASDAQ:BRCM) in set-top boxes, cable modems and home networking. Paban Pandey edits a technology investment newsletter called Tech Pulse.