Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Semiconductor and Semi-Equipment Analysts - Their Calls -- Ignore unavailable to you. Want to Upgrade?

To: Jack Hartmann who wrote (64)	7/6/2000 11:24:23 PM
From: Jack Hartmann	Respond to of 195

Analyze this! Salomon Smith Barney says the end is near for chip stocks--and tech investors cry foul. By David Futrelle A quick quiz: Imagine a tornado is heading straight for your home. Would you like to hear the siren A) before or B) after the tornado lifts you up and sends you careening into the next county? If you're a normal, sane human being--and, heck, for the sake of argument, let's just say you are--chances are pretty good that you answered A. But when it comes to stocks, a surprising number of investors don't seem to want to hear any bad news at all. Investors sometimes chide analysts for downgrading stocks only after bad news has knocked the stuffing out of them. But that gentle chiding is nothing compared to what they dish out to analysts with the temerity to make a negative call before negativity has become the conventional wisdom. Take a look, for example, at what investors are saying about Salomon Smith Barney. When word hit on Wednesday that Solly's Jonathan Joseph had cut his rating on the semiconductor group from "outperform" to "neutral," and trimmed his ratings on several key stocks including Advanced Micro Devices and National Semiconductor, investors fled the sector like rats from Survivor island; the Philadelphia Semiconductor Index crashed more than 9%. And then quite a few of them--the investors, not the rats--scurried over to the message boards to badmouth "Salomon Smith Baloney" and its "Nonsense!!" Some merely accused the brokerage house of stupidity; others thought they saw a sinister stock manipulation conspiracy at work. "THE SEC NEEDS TO KICK SOME ASS," wrote one unhappy investor on the AMD message boards on Yahoo! Finance. "I AM SO SICK OF THESE ANALYSTS THAT ... PREDICT DOOM AND GLOOM WHICH ONLY CAUSES THE INVESTORS TO SUFFER." "I am downgrading SSB to aholes from stupids," wrote another, apparently taking time out from fourth grade to check up on his investments. Sure, chip stocks regained some of the ground they lost the very next day, but on the boards, the hear-no-evil crowd is still pig-biting mad. All that because an analyst dared to speak ill of a few stocks that have seen nothing but praise for months. And "speak ill" is perhaps overstating the case: Joseph's critique was so mild, and so awkwardly worded, that no one but an industry maven would have even recognized it as a critique in the first place. "We see `first-mover' evidence of a trend reversal in decelerating industry units shipments coupled with price declines and contracting lead times in commodity memories and passives," Joseph wrote. This, apparently, is a very bad thing. Ultimately, Joseph argues, all this first-moving-trend-reversing-price-declining will drag the industry into a serious slump--though he doesn't expect the worst to hit for another six to nine months. Now, there's really nothing all that daring in the call. No one who's watched the industry for any length of time doubts that some sort of slump is inevitable. In the cyclical chip business, periods of growth and optimism are invariably followed by periods of gloom and doom. "We will have a downturn," says J.P. Morgan semiconductor analyst Terry Ragsdale. "And it will be nasty, as it always is. When it gets bloody, it will be very bloody." Still, the question is when--and most observers say that Joseph is calling the top a little too soon. "I think the call is quite early," says Ragsdale. And though he acknowledges that no one can time semiconductor cycles with any sort of precision, he thinks we're probably "good through the end of next year." In any case, he says, investors need to realize it's not in their best interests to bail at the first sign of trouble--because if they do, they're more than likely to miss out on a good deal of upside. "History says you own them until the bitter end," he says. "You drive the bus off the cliff and pull the rip cord on your parachute on the way down." Others, even if they disagree with Joseph's analysis, aren't so sure we won't see more selloffs like this one in the days and months to come--if only because investors seem to have itchy trigger fingers these days. "I think the [selloff] tells us a lot about the market [today]," says Rick Billy of SG Cowan. "The market is reacting very negatively to negative calls, and potentially negative news, and not very positively to positive news." With valuations "problematic," as Billy gingerly puts it, we can expect investors to look for almost any excuse to get out of the sector with some of their gains intact. "The valuations are just unprecedented," he says. "And that means risk." Ah, risk. We won't know for a while if Joseph's predicted slump is for real. But he deserves credit for at least starting a discussion that's been long overdue--and for reminding investors of the risks they're taking on when they load up on "can't-lose" stocks. If you thought Wednesday was bad, just wait. The ride only gets bumpier from here. money.com ************ So the reporter reads yahoo for reactions. Jack