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Technology Stocks : S3 (A LONGER TERM PERSPECTIVE) -- Ignore unavailable to you. Want to Upgrade?

To: JerryP who wrote (8157)	12/2/1997 11:38:00 PM
From: SidStock	Respond to of 14577

JP, The entire semi sector is getting hit. S3 doesnt need to be mentioned directly... it follows the same reasoning and more likely is in worse shape financially than others mentioned here. pathfinder.com (here is a partial text version) -Sid Chip makers took it hard Tuesday for two reasons. First Altera (NASDAQ: ALTR) announced that orders in November were weaker than expected. Then Merrill Lynch's Tom Kurlak -- a near-guru among chip analysts -- got on a conference call and cut earnings estimates for Altera and fellow chip makers LSI Logic (NYSE: LSI) and VLSI Technology (NASDAQ: VLSI). In explaining the move, Kurlak delivered a requiem for the sector, just in case anyone doubted the negative signs that have been building up since the summer. His forecast: a prolonged period of chronic pricing pressures, weak earnings, layoffs, and a 50% cutback in capital spending by companies in the sector. Chip makers, note Kurlak and several other analysts, have the following problems. * Oversupply The great chip shortage era that ran from 1992 to 1996 has come to a close for two reasons, and the first is too much supply. In the wake of late 1980s chip shortages, producers built up way too much capacity in the 1990s. Now they are going to pay for it. * Weak Demand Too much supply is one thing. But when you have weakening demand for a product on top of that, things get really dicey. And this is exactly what is happening with semiconductors. Analysts say demand for chips is slumping for several reasons. For one thing, the breathless race to upgrade processing power in personal computers is probably coming to an end. One reason, says Kurlak, is that so many people these days are using PCs to get on the Internet. As any Net surfer knows, things move slowly in cyberspace because of bandwidth problems, not because your computer is underpowered. And until bandwidth problems are resolved, says Kurlak, Net surfers won't feel any need to clamor for more horsepower under the hood. But even off-line computer users face performance constraints that have nothing to do with chip speed, says semiconductor analysts Drew Peck, of Cowan. Weak graphics chips slow things down, and lots of software is not built to make use of top-end processing power. Because of constraints like these, "users are not able to derive more functionality from buying higher power processors," says Peck. Result: future chip upgrades will be greeted with yawns. Another problem for chip makers is that the new "under $1,000" PCs are replacing older computers, but aren't expanding the overall growth in demand for new computers, as many had hoped. ..... Translation: expect lots of trouble with chip stocks ahead. "We are going into 1998 on a downslope," Kurlak said. "There is a high likelihood of a lot of estimate reductions over the next several months."