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To: DJBEINO who wrote (35883)	6/30/1998 4:51:00 PM
From: yard_man	Respond to of 53903

seems like an aberration to me, DJ. the last few weeks has been full of warnings of earnings shortfalls.

To: DJBEINO who wrote (35883)	6/30/1998 4:53:00 PM
From: Lucretius	Read Replies (1) \| Respond to of 53903

<<< things are starting to look better....>> Keep telling yourself that as this ugly dog drops. It will make the losses easier to swallow. Here's what "the man" had to say: Bulletin Semiconductors 30 June 1998 Thomas P. Kurlak, CFA First Vice President Joseph A. Osha, CFA Vice President Merrill Lynch Semiconductor Research Team Global Semiconductor Industry Managements Capitulate, Stock Prices Fall Reason for Report: Industry Update Highlights: The past month was notable for the number of negative comments from semiconductor company managements - sentiment has deteriorated sharply since May. In many cases, the decline in sentiment is being followed with action. TI's sale of its DRAM business to Micron and 3,500-person layoff, Korean attempts to cut DRAM production levels, National Semiconductor's headcount cut and Taiwanese moves to reduce capital spending plans all illustrate how semiconductor companies are attempting to deal with the crisis in their business. Fundamentals continue to deteriorate. Data show that average selling price is still declining, and recent announcements from companies such as General Semiconductor suggest that industry conditions will worsen in the coming months. The steepest part of the slowdown has begun. Indeed, the slowdown has become a downturn and we now believe industry revenues will decline this year, perhaps by 5-10% instead of being flat as earlier expected. Reducing production levels is a necessary first step to resolving the current crisis, and it is encouraging that companies are taking serious measures to cut production. We must now watch for signs such as firming average selling prices and longer lead times that will signal that the belt-tightening measures are taking effect. Managements cave in Comments from this month's global semiconductor conference call highlighted a sharp deterioration in both management sentiment and share prices for semiconductor companies around the world. We wrote last month that the first signs of a move towards cutting capital spending and admission that the semiconductor industry is oversupplied were beginning to appear. This month, we moved further through the cycle as companies across the world, Asia in particular, dropped their previously bullish stances and admitted that their businesses are in trouble. . . . and semiconductor stock prices fall The shift in sentiment, combined with a series of preannouncements from technology companies in the U.S., has finally begun to push share prices back into line with fundamentals. In the U.S., the Philadelphia Semiconductor Index has fallen about 19% since May 12, and is now down 37% since its August 1997 high. In Japan, stock prices for major semiconductor producers NEC, Toshiba, Hitachi, Mitsubishi Electric and Fujitsu have fallen by an average of 10% during the same time period. Major European semiconductor makers Philips, ST Microelectronics and Siemens have also seen an average decline of 10% over the same time period. In fact, we're unable to find a single market in which the stock prices of semiconductor companies have risen on average since May 12. Industry fundamentals may weaken further Industry data and comments from companies continue to suggest that basic problems with the semiconductor industry - overcapacity and weak pricing - have yet to be resolved. General Semiconductor said yesterday that revenues and earnings will be down sequentially in Q2FY98 - given the ubiquitous nature of General Semi's products, we think that the company's problems may be indicative of still-worsening conditions across the semiconductor industry. The most recent WSTS data show average selling prices continuing to decline, while growth in unit shipments weakens as well. Developments during the past month . . . Developments during the past month have included a very disappointing earnings season in Japan, TI's decision to sell its DRAM business to Micron, cuts in production from Korean DRAM makers, likely cuts in capital spending from Taiwan and a spate of bad news from both manufacturers and distributors in the U.S. and Europe. As we mentioned, feedback from management of semiconductor companies in Asia during the past month has been almost uniformly negative. Stock prices recouple with industry trends Semiconductor prices in the U.S. are beginning to more closely reflect the industry's fundamental weakness -capitulation from previously bullish managements and analysts has played an important part in sending stock prices down. European stock prices have behaved similarly. In Asia, there has been some incremental weakness, most notably in Japan, but earlier declines resulting from last year's decline have limited downside somewhat. Decisive action from companies is necessary Although fundamental indicators are holding steady at the moment, it is possible that further deterioration could occur later this year as a result of the ongoing shift to lower-priced PCs and continuing problems with overcapacity. With the market environment still tough, we will be watching closely for evidence that the pessimistic mindset now so prevalent at semiconductor companies is translating into the action needed to bring industry supply into line with demand.