Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: orkrious who wrote (27907)	3/6/2005 3:50:21 PM
From: ild	Respond to of 110194

WALL STREET'S BULLISHNESS toward semiconductor stocks neared unanimity last week. Lehman Brothers and JP Morgan joined the ebullient crowd that believes business will get better for the chip makers this quarter...or by second quarter...or by third quarter -- even if it hasn't yet. You might wonder who's left on the sidelines to step in and buy these stocks, given the gains already enjoyed by the chip sector. Since September's low of around 350, there's been more than a 20% rise in the Philadelphia Semiconductor Index, otherwise known as the SOX. The SOX finished last week at 433. But don't fret about future buyers. I found a bear. Wells Fargo Securities has only six Sell ratings on the 182 stocks covered by its analysts. Every one of those Sells comes from the firm's chip analyst, Tad LaFountain. If LaFountain is representative of a meaningful number of investors, then further buying could yet emerge for those stocks, when holdouts like LaFountain stop marching to the beat of their different drummers and capitulate. "I feel totally out of step right now," admits LaFountain. Since November, he's had Sell ratings on Altera, Broadcom, Cypress Semiconductor, Intel, Linear Technology and Maxim Semiconductor. The prospect of additional buyers should please bulls like Christopher Danely, the JP Morgan analyst who upgraded chip makers like Cypress, Intel and International Rectifier on Tuesday. Danely looks for the industry's sales growth and gross margins to improve around mid-year. Should that happen, Danely thinks chip stocks could rise another 25%, because valuations are only at their average historical levels. Feeling Chipper: Chip stocks jumped, with endorsements from Lehman and JP Morgan, but Merrill helped cool investors' semi enthusiasm by noting the sector's weak pricing. The Nasdaq Composite Index finished the week up 0.34%, at 2071. To the dour LaFountain, chip valuations were excessive back in November, and the group's subsequent rise has only made the overvaluation worse. The product lines of most chip makers are mature, says LaFountain. And managers of the companies have misapplied profits toward stock buybacks, to offset the dilution of their overly generous stock- option awards. After June of this year, of course, accounting rules will require option expensing. That will turn a harsh light on the spendthrift option practices of firms like Broadcom and Maxim, showing them to be all the more overvalued. Last year's semiconductor slump resulted from a glut of inventory at chip makers and their customers, even though end-demand reached record dollar levels. This year's demand outlook is less encouraging, and inventories haven't measurably improved. Spot prices dropped 30% in the last month for DRAM (or dynamic random access memory) chips sold by Micron, Infineon, Hynix and Powerchip. Writeoffs enabled Intel to trim its own inventories by more than a half billion dollars in the December quarter. But days of inventory at the companies covered by Morgan's Danely actually grew in December, from 85 days to 88 days, on average. At Advanced Micro Devices, days of inventory were 82% above the company's historical average. Xilinx was 47% above its own average. National Semiconductor was 38% above, and Broadcom was 32%. An inventory pile is a good place to conceal gross margin pressure, by the way. LaFountain isn't ready to capitulate. "Everyone talks like they've learned the lessons of the year 2000, but the dollars are being invested like it's 2000," he says. "Despite their protestations, all managers have become momentum investors." more... online.barrons.com