Whither Now Wall Street?
Jeff Chappell -- Electronic News, 9/18/2003
reed-electronics.com
Wall Street has been calling the upturn for a number of months now, but at least one investment banker, Goldman Sachs, is backing off just a bit on the bullish outlook following a trip to Asia.
Stocks in general though are hitting record highs today, buoyed by positive economic data. A dip in mortgage rates for the second week in a row, coupled with a rise in the index of leading economic indicators for the fourth month in a row and lower than expected jobless claims – still nevertheless at their highest rating since mid July – all served to fuel volume buying.
The Dow Jones Industrial Average hit a 15-month high today, as the Dow Jones Industrial Average hit triple digits, rising 1.1 percent to 105 points this afternoon. Meanwhile, the tech-laden Nasdaq also rose 1.1 percent, adding 20 points to 1,903. It was the first time the Nasdaq broke the 1,900 level since March of last year.
But disappointing book-to-bill data for August, released by Semiconductor Equipment and Materials International late Wednesday, and a cautious research notes from equipment market analysts at Goldman Sachs Group Inc. have apparently cooled trading on equipment stocks. Even as chip and other technology-related companies saw stock prices rise today, many equipment vendors saw theirs drop.
Even Sun Microsystems saw its stock rise, despite reports that it was cutting 3 percent of its workforce, more than 1,000 jobs.
Wall Street darlings Applied Materials Inc. and KLA-Tencor Corp. were both down today, 1.66 percent and 1.41 percent, respectively, in late afternoon trading. Novellus Systems Inc. was also down 0.41 percent as well. All three made the top 25 list for volume trade leaders.
No. 1 lithography tool vendor ASML was down 0.97 percent as well in afternoon trading today.
On Wednesday afternoon SEMI reported that preliminary bookings data for North American semiconductor process equipment vendors improved somewhat in the month of August from the drop in July, but were essentially flat with May and June. The book-to-bill ratio for the month was 0.91, whereas Wall Street had expected the figure to be much nearer to parity.
"Looking forward, we are a bit concerned that short-term Street expectations have become over-extended and that the stocks could pull back heading into earnings season," Goldman Sachs analysts James Covello, William Franklin and Amanda Hindlian said in a research note today.
"While the cyclical ramp continues, we are afraid that Street expectations have accelerated at a faster clip than fundamentals," they concluded. "We believe that the book-to-bill data is a prime example of this disconnect, as although orders improved slightly month-over-month, Street expectations for the book-to-bill data were ahead of reality."
Asia Trip Cools Goldman Sach's Jets
Following the three-day Goldman Sachs Asia Tech Conference, analysts for the investment company are a little cautious about the equipment sector for the near term. Although they emphasized that they remain convinced the cyclical upturn is underway, they believe equipment vendors will take a hit on Wall Street in the near future, trading down 15 percent.
"The potential catalyst for the sell-off is the equipment companies offering conservative Q4 sequential order guidance," the analysts stated. "We now believe this is likely based on data points we learned at the conference.
"Our main concern is that several of the projects that were originally slated to make orders in Q4 have either been pulled into Q3 (i.e. Samsung's Phase 2, Fab 12) or pushed into Q1 '04 (i.e. SMIC, STMicro, Sony, and Toshiba). Given the recent run in the stocks and the plethora of Street upgrades that have heightened expectations, we believe conservative Q4 order guidance will hurt the stocks in the short-term," Goldman Sachs concluded.
The analysts also noted that Japanese chipmakers, which have driven a lot of order activity this year among equipment vendors, are in a digestion phase in which they are accepting 300mm equipment orders placed in previous quarters. "This digestion phase is likely to last through Q4 '03 before the Japanese companies once again begin ordering significant volumes of equipment in H1 '04," the analysts said.
Goldman Sachs also suggested that some of Taiwanese foundry orders expected to drive orders in Q4 are difficult to predict. "Specifically on TSMC (Taiwan Semiconductor Manufacturing Co.), we understand that the company's capacity expansion plan is as follows: At Fab 12, TSMC's first 300mm fab, the company will only add an incremental 1,000 wafers per month for the foreseeable future," the analysts said. "The orders for the majority of these tools have been placed, and the company intends to make a decision regarding capacity expansion at Fab 14, the company's second 300mm fab, in late 2003.
Fab 12 is a 0.13-micron fab, while Fab 14 is slated to be a 90nm process fab.
"While it is entirely possible that TSMC will begin to make orders very late in 2003, it seems to be a 50/50 possibility that the company will wait until Q1 '04 to place any significant orders," the analysts concluded. |
