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 |
