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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (814)	7/22/2001 2:13:38 PM
From: Return to Sender	Read Replies (1) \| Respond to of 95641

I'm not so sure about a typo there Gottfried. Read this about these Semiconductor Pigs: You Can't Put Lipstick on These Semiconductor Pigs By Jim Seymour Special to TheStreet.com Originally posted at 2:39 PM ET 7/20/01 on RealMoney.com Novellus (NVLS:Nasdaq - news - commentary) warmed us up at the beginning of the week, making a penny. Its stock price sagged sharply at the open Tuesday, but came back. That night, Intel (INTC:Nasdaq - news - commentary) delivered -- so to speak. Its in-line earnings may have met the drastically reduced analyst forecasts, but not the expectations of the market, which today opened with Intel down a buck-plus. But as with Novellus, Intel, looks as if it's crawling back up now. And Thursday night, Vitesse (VTSS:Nasdaq - news - commentary) hit the consensus but got killed in after-hours trading, down more than 7%. The volatility and irrationality of the semis, and the semiconductor-equipment makers, make for tough investment decisions, especially because the real story -- falling revenues, despite those as-expected EPS results -- is ugly, and getting uglier. Vitesse's quarterly revenue was down 51% quarter-to-quarter and 47% over the same quarter last year. Intel's revenue was down 5% from the previous quarter and 24% from the same quarter last year. Novellus' revenue was down 18% quarter-to-quarter, though up 3.6% from the same quarter last year. This sounds to you like a healthy, or even recovering, industry? Moreover, company after company admits they have essentially no visibility looking forward. When we do get forward estimates from company executives, they're over an incredibly wide range and wrapped in deliberately spoken ambiguity. Case in point: Intel CFO Andy Bryant's $600 million range in his estimate of Intel's third-quarter earnings. Which, after a week like this leads to the real question: Not which semi stock to buy, but why would you want to be in semiconductors and semi equipment at all? Intel thinks it may get better in the Christmas quarter and, in fact, is cutting margins by chopping Pentium 4 prices early and deeply to promote that recovery. But that sounds like the old retailers' line about losing money on every sale, but making it up on the volume. And that "Q4 miracle" has yet to be confirmed in the real world. Yes, with cheaper PCs (thanks to Intel's picking of its own pocket on Pentium 4 prices), and with Microsoft's huge push on Windows XP (which is not a pretty upgrade installation; if you want it, buy a new WinXP PC), there may be a Q4 pickup. But not enough to restore Intel's margins. Intel also says it's cranking up shipments of Pentium 4s for that magic recovery. What if the PC makers can't hit those ambitious sales targets? Inventory problems for Intel once again? Worse, has anyone noticed that the rich-margin days of yore are gone for Intel? It used to bring out new CPU chips with enormous margins, capture the early-adopter sales, then shave prices gradually to original equipment manufacturers, winding up at about half the rollout price. Now it brings them out at those de facto half-off prices. What about Advanced Micro Devices (AMD:NYSE - news - commentary)? Now Intel's suddenly hot challenger has absolutely no pricing control: To keep up its assault on Intel's market share -- which grows directly from its much cheaper prices for comparable-performance CPUs -- it has to keep chopping prices, no matter how aggressively Intel returns the fire. So AMD, which just two weeks ago reported an 86% drop in earnings in its second quarter and forecast a loss in the third quarter, is greasing its own skids. Worse, COO Hector Ruiz said AMD's flash-memory sales could sink 30% in the third quarter. Combine that with the severe margin pressure in CPUs, and it doesn't look pretty. On the semi-equipment side? Novellus, Applied Materials (AMAT:Nasdaq - news - commentary) and KLA-Tencor (KLAC:Nasdaq - news - commentary) are all struggling. Yes, their share prices are up from earlier this week, but the underlying businesses are still in trouble. In comments Monday, Applied Materials refused to reaffirm earnings guidance for upcoming quarters and indicated the drop in sales had been steeper than previously believed. And Semiconductor Equipment and Materials International, the trade group for semi-equipment makers, said Monday it sees its industry's sales falling by 35% this year -- and no recovery (defined as beating last year's results) likely until 2004. I think it's too early to jump back into semiconductors and semi equipment. I'm not alone in this, but I should say that some formidable minds are lined up on the other side: Jim Cramer and Tom Kurlak both think the grass is about to get a lot greener. Me, I think you can save money and frustration by waiting a while to get back in.