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Strategies & Market Trends : Angels of Alchemy -- Ignore unavailable to you. Want to Upgrade?

To: Bald Man from Mars who wrote (24065)	1/3/2001 9:23:03 AM
From: ColtonGang	Read Replies (2) \| Respond to of 24256

Caught this on RB....... Semiconductors by Smart Money !!! First Choice: Texas Instruments (TXN) Runner-Up: Advanced Micro Devices (AMD) SINCE SEMICONDUCTORS ARE the fundamental building blocks of the digital revolution, we've always advocated buying leading companies whenever the sector has crashed (as it has every three years or so). That leads us to be early occasionally, as when we nominated Analog Devices as a Best Investment for 1998. It had a terrific year...in 1999. As we went to press in late November, analysts who cover communications-chip companies such as Applied Micro Circuits (AMCC), PMC-Sierra (PMCS) and Vitesse Semiconductor (VTSS) were going through a new round of hand-wringing, and prices were in a free fall. PMC-Sierra lost $102 in four weeks. We couldn't know where valuations on those stocks would end up, so we don't have them on our list. At the same time, we're confident that eventually they will appear to be as big a steal as they were in late 1998. Even a pessimist like Lehman's Dan Niles says he's looking hard at RF Micro Devices (RFMD) now that it's 70% off its high. But rather than rush our reporting, we decided to leave the fallen angels for another article. There are plenty of other bargains to choose from in the meantime. Texas Instruments (TXN) is arguably as important to the communications-equipment makers as any other chipmaker, thanks to the key role played in all communications equipment by its digital signal processors (DSPs). Yet after a rough summer, the second-largest semiconductor stock trades at 26.1 times the 2001 consensus EPS of $1.60. We figure that's between 15 and 20% lower than the stock's average P/E since 1996. TI's decline from $100 can be traced to worries about reported softness in mobile-handset sales. It's true that the company is a major handset-component maker. But less than 20% of the Dallas company's revenue comes from wireless chips. Almost the same amount comes from its catalog business. Catalog chips are off-the-shelf items sold for a wide variety of applications, including streaming audio. TI's DSPs have just walked away with 30 new design wins in digital consumer electronics products — including Sony's Network Walkman. We had a lot of choices for the runner-up spot, but in the end, we couldn't resist the temptingly low valuation of Advanced Micro Devices (AMD). With a forward P/E of 7.9, AMD trades like some kind of car maker instead of a tech firm that's expected to increase profits by over 20% a year once this economic slowdown passes. Yes, it's true that AMD has some well-known negatives going for it. Rival Intel has just released its Pentium 4 generation of PC microprocessors and once again claims the speed crown. Plus, there is now excess production capacity for microprocessors in general, given the slower rates of PC sales. But AMD isn't a one-trick pony. A third of its income now comes from flash memory — the kind most common in consumer appliances. The flash memory market is growing at 130% a year. There's more than enough demand to make everyone in that sector profitable. And the microprocessor situation may not be as bad for AMD as many think. Not only is the Pentium 4 more expensive than AMD's 1.2-gigahertz Athlon chip, but it is designed to work only with expensive Rambus (RMBS) memory chips. Needham & Co. analyst Dan Scovel thinks the added expense may be a hard sell for Intel (INTC) in a tight PC market.