Chip stocks surge after Merrill Lynch ups forecast, but concerns remain
By Mark LaPedus
Semiconductor Business News
(08/18/00, 07:40:24 PM EDT)
SAN JOSE -- U.S. semiconductor stocks rallied today after Merrill Lynch & Co. raised its forecast for growth in the global chip industry, but there are still some ominous signs in the business, especially in the wireless segment.
But despite some jitters in the wireless industry, Merrill Lynch raised its previous forecast for worldwide semiconductor revenue growth from 32% to 40% in 2000 and 21% to 26% in 2001. The brokerage firm attributed the higher growth to stronger-than-expected demand for communications chips, wafer foundry capacity, and semiconductor-production equipment.
"The semiconductor market remains strong," said analyst Brett Hodess, who tracks the IC industry for Merrill Lynch in San Francisco. "The PC market remains stable, but the communications chip market looks especially strong. What we're also seeing is that average selling prices for semiconductors are rising."
The forecast was welcomed news for semiconductor stock investors. The Philadelphia Stock Exchange's Semiconductor Index rose 31 points, or 2.8%, to 1142, in heavy trading. And shares of wafer fab supplier Varian Semiconductor Equipment Inc. rose after a Lehman Brothers Inc. analyst raised his rating on the stock to "buy" from "neutral."
Still, there are some worrisome signs, including a possible slowdown in the cellular-phone industry, in which a mixed supply picture has some analysts worried about growth rates (see Aug. 15 story).
Earlier this week, for example, TelCom Semiconductor Inc. warned that sales in the third quarter will be flat or slightly down compared to the last period, citing a slowdown in the wireless sector, according to officials from the Mountain View, Calif.-based supplier of analog and mixed-signal chips (see Aug. 16 story).
Other cell-phone chip makers have been impacted by other factors in the market. Recently, for example, the South Korean government said it would discontinue its subsidiaries for Korean cell-phone makers--a move that could have a negative effect on several chip markets, including CDMA-chip specialist Qualcomm Inc. San Deigo-based Qualcomm's largest chip customers are located in Korea, analysts said.
"There are always seasonal and region factors that will impact a market, but long term, we don't see a dramatic slowdown in the industry,'' said Johan Lodenius, senior vice president of marketing and product management for CDMA Technologies Division at Qualcomm Inc., the semiconductor and software arm of the San Deigo-based company.
On the other hand, some IC vendors still are thriving in this sector. Cypress Semiconductor Corp., for one, earlier this week said the demise of the cell-phone business has been greatly exaggerated, saying that sales of low-power SRAMs to Motorola Inc.'s cellular phone group will remain strong in the second half of 2000. In fact, Cypress said it anticipates 20% sequential growth in SRAM sales to Motorola in the third and fourth quarters, based on current demand projections (see Aug. 16 story).
In fact, there are some mixed signals in the market. "In the early summer, the 'doomsdayers' were saying that the cell-phone market was slowing down," Hodess said. "Our opinion is that the market is not slowing down. Even with the revised levels of cell-phones shipments, we believe that [cell-phone chip] capacity will remain tight in this industry."
Others believe the picture is a bit more cloudy. "Maybe we are entering into a period of uncertainty," said George Bechtel, who tracks the wireless- and RF-chip sectors for Strategies Unlimited Ltd. of Mountain View, Calif.
"During the last quarter, everything looked good [for cell-phone chip makers]," Bechtel said. "Now, we're in a period of balance in terms of supply and demand, but we see a lot of capacity coming online in 2001. We could also see some problems in terms of excess capacity and pricing."
In the last year, in fact, wireless-chip makers have been rapidly expanding their fab capacities, especially radio-frequency IC suppliers like Agilent, Anadigics, Conexant Systems, Infineon, RF Micro Devices, among others.
Just how this will impact the overall market remains to be seen. But at present, the RF-chip market is beginning to loosen up after a period of tight supply, said Jim Cochrane, group marketing manager for RF semiconductors at Infineon Technologies Inc., the U.S. subsidiary of the Munich-based chip maker.
"I do see some slow down," Cochrane said. "OEMs like Nokia and Motorola will not hit their original production targets. If Nokia and Motorola scale down their forecasts, then that frees up capacity in the industry."
This could impact the bottom lines at Infineon and other chip makers, analysts said.. For example, Infineon earlier this year said it was sold out of its worldwide RF-chip capacity for 2000, but now the company is singing a different tune. "We are still heavily booked, but we are not sold out," Cochrane said.
Another RF-chip competitor concluded that the market was due for a correction. After frenetic growth in the industry--and unrealistic expectations--the cell-phone and wireless-chip market are moving into a stage of maturity.
"We're beginning to see some sanity in the market for a change," said Gene Brannock, vice president of marketing and engineering for San Jose-based Fujitsu Compound Semiconductor Inc., a supplier of wireless and fiber-optic devices. |
