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Technology Stocks : Micron Only Forum -- Ignore unavailable to you. Want to Upgrade?

To: Patrick Koehler who wrote (29732)	3/8/1998 4:11:00 PM
From: Amjad	Read Replies (3) \| Respond to of 53903

Behind the MU upgrade (source: PointCast) Semiconductor stocks showed good strength Wednesday, but even the analyst who stirred up all the interest says you shouldn't be buying just yet. Despite an overall weakness in the tech sector, many chip stocks bounced up nicely Wednesday on news that BancAmerica Robertson Stephens analyst Dan Niles upgraded semiconductor maker Micron Technology (NYSE: MU). His reasoning: Japanese chip makers have slowed down their orders for equipment. That means their production will be coming down as well, bringing supply and demand back in line by the end of the year, predicts Niles. "We believe that cutbacks in capital expenditures will lead to demand outstripping supply by year end...and firm up prices as we work our way through 1998," Niles says. Before then, though, a couple of things will happen that will knock the stuffing out of these stocks once again, says Niles. They are: Japanese DRAM makers will dump inventory as they reach the end of their fiscal year in March. Near-term estimates for Micron will be reduced by other brokerages after the company announces earnings, scheduled for March 17. This quarterly profit release should be the low point for earnings, and also the stock, says Niles. Other tech companies will preannounce or guide down estimates in March. After these events, Micron will "become much easier to own," says Niles. Indeed, he thinks in the near term the stock could slip back down to $30 or lower, creating a much better buying opportunity than that realized by investors picking up the stock today. "We would accumulate the position slowly and patiently as the stock continues to decline," he says. Those who wait should be amply rewarded if Niles' view on the stock is correct. He says it will reach $45 within 12 months. The semiconductor sector has recovered recently since the selloff that peaked last December, but many analysts, including Tom Kurlak of Merrill Lynch, have been predicting things would get worse again before they got better. See Jan. 30's Money Daily for more. The reason, supply is still much greater than demand, and many of the big Korean chip makers plan to aggressively exploit the weakened Korean currency to increase their global sales. In addition, the bounce in DRAM prices earlier this year that brought the stocks back up was just a false alarm, they say. DRAM supply and pricing was driven to artificially low levels late last year before the recent bounce -- as Asian producers dumped inventory to raise much-needed cash, and computer makers did the same because of doubts about personal computer demand. But that overreaction lead to a temporary shortage in the market, which then caused DRAM prices to bungee jump back up earlier this year. That gave a false impression that underlying fundamentals were getting better. But the overall conditions of oversupply did not really go away, analysts say. The imbalance probably won't be corrected until later this year or 1999, depending on whom you listen to. But the semiconductor stocks should recover before that since investors price in conditions six to 12 months ahead of time. Anyone investing in chip stocks like Micron should keep in mind the usual warnings. The industry is highly cyclical, it is largely dependant on the cycles in PC sales, and a strengthening of the dollar against the yen or Korean won can lower DRAM prices, which can hurt some producers. That said, there is no better time to buy than the bottom, assuming you have the patience to wait for it.