SAN FRANCISCO--(BUSINESS WIRE)--Jan. 28, 1998--
Semiconductor Stocks Will Outperform S&P 500 in 1998, Analysts Predict
Continued strong demand from the personal computer industry, increased sales to the communications sector and a firming of memory chip prices should result in a solid year for most semiconductor companies and stocks, according to a team of semiconductor industry analysts for NationsBanc Montgomery Securities. "We believe semiconductor stocks will outperform the S&P 500 in 1998," predicted Jonathan Joseph, a senior research analyst who covers such companies as Intel, Texas Instruments, Micron Technologies and NeoMagic. Joseph's comments came at NationsBanc Montgomery Securities' 15th Annual Technology Week investment conference, which is running January 27 through January 30. The conference has attracted more than 1,900 attendees to hear presentations by 147 public companies and 35 private companies. During the conference, NationsBanc Montgomery Securities analysts are conducting a series of workshops that provide attendees with up-to-the-minute analyses of a wide variety of!
industry segments. Joining Joseph in the semiconductor workshop were analysts Clark Westmont and Douglas Lee. Joseph based his stock price prediction on the correlation between expected strong demand for chips and an expected reduction in semiconductor capital spending. Historically, when semiconductor capital spending falls, but demand for semiconductors rises, semiconductor stock prices rise as well, Joseph said. In 1998, capital spending is expected to drop 5%, while demand is expected to increase by 10%, suggesting a good year for semiconductor stocks. Joseph forecast "sustained, double-digit growth" of demand for chips used in personal computers, including microprocessors, digital signal processors (DSPs), microcontrollers and microperipherals. He also expects increasing demand for semiconductors used in digital wireless telephones and cellular networks, as communications networking software is increasingly embedded directly on semiconductors. In the memory chip markets,!
unit sales are rising, while prices are firming after a late collapse of DRAM prices in 1997, Joseph said. He expects DRAM prices to firm as the year goes on. Joseph also addressed investor concerns about the effect of Asian economic problems on the semiconductor industry. Overall, he believes that semiconductor stocks have already absorbed the bad news from Asia. He said that concerns about slowing demand from Asia are real, and that the Asian "flu" could spread to China and Japan. On the positive side, Joseph noted that major Korean chipmakers, such as Samsung, are now slashing their capital spending due to their inability to borrow, and as a result, they won't be able to add capacity that might have put further pressure on commodity chip prices. Joseph's current stock picks include Micron Technology, Intel(1) and NeoMagic(1).
Analog Chips Enable Digital Revolution
Analyst Douglas Lee, who covers analog and discrete devices, noted that while digital semiconductors, such as microprocessors, get all the attention, it is analog chips, such as signal converters and power management devices, that do the less glamorous work behind the digital revolution. For instance, he pointed out that a "digital" cellular phone is actually comprised of 60% analog components, such as power amplifiers and filters. The market for analog devices is approximately $20 billion and is growing at a compound annual growth rate of 17% annually, he estimated. Analog devices "have the most stable growth profile of all the semiconductor sectors," Lee said. Lee asserted that stocks of analog device companies are "an essential play" for semiconductor investors due to the sector's favorable attributes: high barriers to entry; relatively low capital requirements; diversification among customers, markets and products; long product life cycles; and many high-performance pro!
duct niches. With many investors aware of these factors, stocks of analog device companies have already seen strong price appreciation. Among those still sporting attractive valuations are Semtech, a leader in analog microprocessor power management. Lee also favors Aavid Thermal Technologies(1), a major provider of thermal management solutions who he believes will be a derivative beneficiary of increasing power consumption trends.
Makers of Communications Components Have a License to Kill
Analyst Clark Westmont highlighted opportunities in the communications component industry for investors. The industry, which supplies semiconductors used in wireless communications as well as local-area and wide-area networks, enjoys high barriers to entry but is not a capital-intensive industry. Furthermore, once customers have designed their products, it is costly for them to switch suppliers, giving the industry pricing leverage and providing greater certainty to revenues. The $8.3 billion wireless chip industry is forecast to grow at a compound annual rate of 17% through 2001, while the market for networking chips is expected to grow 11% per year during the same time period, Westmont said. Westmont's stock selections include PMC-Sierra(1), Level One Communications(1), Applied Micro Circuits(1) and Analog Devices(1). NationsBanc Montgomery Securities LLC (NMS), a subsidiary of NationsBank Corporation, is a full-service investment bank and brokerage firm with approximatel!
y $800 million of regulatory capital. The company provides research, trading and issuance in the equity and fixed-income markets (high yield, emerging markets, high grade and mortgage-backed markets). Other services include M&A advisory, financial buyer coverage, loan syndications, global investment banking, real estate finance, mortgage finance, money markets and the primary dealer. Through NationsBank, NMS clients can also access products and services that include senior bank debt, bridge financing, real estate banking, treasury management, trade finance and risk management (derivatives products and foreign exchange). NMS is a registered broker-dealer with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers and the New York Stock Exchange. NMS employs more than 2,200 investment professionals.
(1) NationsBanc Montgomery Securities LLC currently maintains a market in this security. NationsBanc Montgomery Securities LLC was manager or co-manager of a public offering and/or has performed investment banking or other services for this company in the last three years.
CONTACT: NationsBanc Montgomery Securities
Jennifer A. Smith, 415/913-5968
jasmith@montgomery.com
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