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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: StanX Long who wrote (55071)	11/4/2001 11:54:12 PM
From: StanX Long	Read Replies (1) \| Respond to of 70976

Divining the chip cycle By Duff McDonald Red Herring October 19, 2001 redherring.com This article is from the October 15, 2001, issue of Red Herring magazine. Let us say this about the Nasdaq's performance this summer: it wasn't hard to keep track of which way it was going. A dismal August saw the index in free fall, dropping 10.9 percent with rarely a day above water. Not so for semiconductor stocks. One day up, the next day down, the sector has been prisoner to equity analysts and their paroxysms over the iconic chip cycle. Since July 31, these folks have offered us a wholesale upgrade, an equally wholesale downgrade, an "I told you so," another upgrade, and, in the end, more questions than when we started. Advertisement Explore within this space Reactions were as diverse as the analyst actions themselves. The Philadelphia Semiconductor Index (SOX) moved 4 percent or more on 7 of 23 trading days during August, and ended the month down 7.1 percent. Along the way, some market watchers became more convinced that their outlook for chip stocks was the correct one, just as others became more convinced that Wall Street analysts don't know a semiconductor from Adam. In the hope of determining the difference ourselves, Red Herring will address a handful of interesting (to us at least) questions that arose in the waning days of summer. What's the point of upgrading or downgrading an entire sector when an analyst likes (or dislikes) some stocks more than others? In a word, attention. Like it or not, Wall Street is about reputations, and the easiest way for an analyst to get some of that mojo is to make a grandiose call. Joe Osha and his team at Merrill Lynch kicked things off with a report titled "Train's Back in the Station -- Climb Aboard" on July 31. Analyst Charlie Glavin et al. at Credit Suisse First Boston followed on August 6 with "Downgrading Sector on Poor Fundamentals and Valuation." Not to be left out, analyst Terry Ragsdale and friends at the Goldman Sachs Group outlined a "double-hump" recovery, and upgraded on August 13. If you actually read the reports, as many an armchair critic clearly neglected to do, the analysts did get around to making specific stock calls. Mr. Ragsdale upgraded a few stocks to Goldman's Recommended list, including Analog Devices (NYSE: ADI), Broadcom (Nasdaq: BRCM), and Intel (Nasdaq: INTC). Mr. Osha also upgraded Analog Devices, as well as Texas Instruments (NYSE: TXN) and Taiwan Semiconductor (NYSE: TSM). And despite Mr. Glavin's bearishness, he endorsed a handful of stocks trading at relatively low valuations -- Advanced Micro Devices (NYSE: AMD), Centillium Communications (Nasdaq: CTLM), Silicon Image (Nasdaq: SIMG), and TranSwitch (Nasdaq: TXCC). The media may judge these analysts by their broad calls, but their clients will likely focus on the picks. Will we ever see an explicit top or bottom to the semiconductor cycle? No. But first, nostras culpa. Almost a year ago, we told readers that trying to time the semiconductor cycle was a fool's errand. At the time, Salomon Smith Barney analyst Jonathan Joseph had seen his profile rise as a result of a controversial downgrade of the industry. We suggested that it didn't matter whether he was right or wrong and that investors should stick with the stocks of high-quality companies. Well, in the wake of the cataclysm in electronics markets, market timers have fared better than buy-and-holders. If you'd hung on to our suggestions, you'd have pocketed a 70 percent loss through this September.