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Technology Stocks : CYRIX / NSM -- Ignore unavailable to you. Want to Upgrade?

To: Investor A who wrote (21785)	12/5/1997 8:18:00 AM
From: Vic Breck	Respond to of 33344

What's Ailing the Tech Sector From Briefing Com. Daily commentary updated December 5, 1997 While the blue-chip indices are in the midst of a strong year-end rally, the Nasdaq is struggling to press higher . The major reason for the latter's underperformance has been widespread weakness in the technology sector. In today's Brief we investigate the forces behind the relatively disappointing action in the tech sector. Asian Crisis Though momentum in the tech sector began to wane prior to the storm in Asia, the financial crisis that has engulfed the region is a leading reason why techs continue to lag behind the rest of the market. The chip equipment makers have been hit the hardest by the Asian turmoil, as investors expect a slowdown in capital spending to result in weaker earnings growth going forward. Chip, networking and computer systems stocks have also been pulled down by worries that an economic slowdown in Asia will depress revenue/earnings growth from the region. While we have noted that many of the tech stocks highlighted on our Tech Sector page don't derive a significant percentage of their revenues from the geographic area, the Asian region was expected (in many cases) to offer the greatest growth potential for future sales/earnings. Consequently, estimates for this growth are being pared. How negative an impact recent events in Asia will actually have upon the sector remains uncertain. But until the market gets a better handle on how events overseas will weigh on earnings in CY98, we expect techs to remain on the defensive. Paradigm Shift Another factor weighing on the sector is the shift in consumer preferences away from increased processor speed and toward increased bandwidth. Consumer needs and education are driving the shift, and the ramifications are just beginning to be felt in many industries. Given that most consumers use their PCs for email, surfing the web, personal finances, etc., they are discovering that a scaled down box with increased bandwidth for video, data and audio transmission is what best suits their needs. Consequently, demand for next-generation chips and high-end disk drives is weaker than expected, resulting in sharp price cuts and reduced margins for many chip and disk drive makers. While lower component prices are good news for PC makers, increased competition and a potential flood of cheap exports are not. On the plus side, those companies focusing on increasing bandwidth stand to benefit from the paradigm shift in the tech industry. Portfolio Adjustments Fourth quarter window dressing and year-end tax selling are also influencing the behavior of the tech sector. Stocks such as Ascend Communications, Seagate, KLA-Tencor, Netscape, PictureTel, etc., which are well off their 52-wk highs, should continue to exhibit bearish tendencies into year-end as select investors secure losses for tax purposes and portfolio managers unload/reduce remaining holdings to improve the appearances of their portfolios. Even winners such as Dell, Compaq, Oracle, Qualcomm, Lucent, Cisco and others are struggling a bit as portfolio managers, worried that year-end retreat might erase their performance results (just before bonus time), are taking some profits off the table. No "Must Have" Products Aside from WebTV and/or the NC, there is little in the way of "must have" products to generate excitement in the consumer marketplace. Microsoft's Windows 98 isn't scheduled for release until mid-98, and Intel's Pentium II is a relative disappointment (see Paradigm shift above). Consequently, the tech sector is suffering through a somewhat lackluster holiday season.