From the AMAT thread:
Lehman on chips, includes more on the 233 Pentium story.
Headline: Semiconductors: 4 Factors Triggered Yesterday's Chip Stock Rally
Author: M. A. Gumport, CFA 1(212)526-5368
Company: AMD,CUBE,INTC,LSI,LSCC,NSM,STM,TXN,XLNX,VTSS
Country: IND CUS
Industry: SEMICO
Today's Date : 06/23/98
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** 4 FACTORS TRIGGER CHIP RALLY: 1) NATIONAL/MICRON REPORT OF
BETTER BUSINESS, 2) REPORTS OF PENTIUM PRICE UPTICK/ALLOCATION,
2) REPORTS OF DRAM PRICE UPTICK AND CONSOLIDATION, 3) MORE
COMPANY REPORTS OF BETTER ORDER TRENDS IN LATE JUNE.
** PUT A TOE IN THE WATER. JULY LOOKS LIKELY TO BE TYPICALLY
RUGGED, BUT LOW PRICED PCs SHOULD HELP STIMULATE BIG 4Q98
VOLUME INCREASE.
** OUR FOCUS REMAINS GEARED TOWARDS TELECOM, DATACOM,
MOBILE COMMUNICATIONS, DIGITAL TRANSMISSION, DIGITAL IMAGING
AND AWAY FROM THE INCREASINGLY COMMODITY PC AND MEMORY
SECTORS. FAVORITES INCLUDE: VITESSE, VITESSE, VITESSE, TEXAS
INSTRUMENTS, STMICROELECTRONICS, XILINX, LATTICE, C-CUBE.
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WHAT FUELED YESTERDAY'S CHIP STOCK RALLY:
1) A BACKDROP OF 2 POSITIVE DATAPOINTS FROM NSM AND MU. Last
week, Micron (MU-$23.88;3) reported a surprisingly strong 45% growth in bit shipments,
and National (NSM-$13.69;3) indicated there might be some upside in its previous
expectation of a Aug. FY1Q99 sales sequentially flat.
2) REPORTS OF AN UPTICK IN PENTIUM-2 PRICING/ALLOCATIONS. Several
sources indicated to us some variant of a story regarding allocations of high end Pentium
2s and/or a price uptick.
3) DRAM UPTICK/INDUSTRY CONSOLIDATION. MU specifically indicates that
DRAM prices over the weekend moved up significantly. Also, Samsung is anticipated
imminently to swap assets with Hyundai and LG to consolidate all Korean DRAM
manufacturing (and take a more moderate stance on pricing). Discussions with MU
suggest that after 45% bit growth in May FY3Q98 and likely 30% in Aug. FY4Q98,
supply constraints will limit bit growth to 5% in Nov. FY1Q99.
4) ONE MORE POSITIVE DATAPOINT: OUR WEST COAST ANALYST DAN
MEYERS TELLS US ORDERS AT VLSI HAVE MOVED FROM AWFUL TO OK.
That may be a thin reed on which to rest a case that industry orders have improved in late
June, but it does add one more datapoint.
WHAT WE ACTUALLY SEE:
1) TOUGH TO CONFIRM ANY DRAM PRICE UPTICK. DRAM's, flat for a few
days, are still down 5-10% from a week ago. Talk of an uptick is not yet reflected in
broker listings.
2) PRICE UPTICK IN PENTIUMs ACTUALLY IS SHOWING UP IN
PENTIUM-2/233s, A PART LIKELY TO FACE TOUGH ONGOING
COMPETITION. The Pentium-2/233 is the only part significantly up (+8% during the
past week and now slightly above list). Clearly, an uptick is interesting but not likely to be
sustainable.
AND WHAT WE EXPECT: A VERY TOUGH JULY, A MUCH BETTER 4Q98. July
is normally by far the slowest month of the year. We see no reason to expect any
different this year. Earnings reports will, in general, be downbeat and well below
expectations of a month or two ago. That said, low priced PCs, DVD, cable data modems,
ADSL modems, and digital broadcasting should stimulate strong 4Q98 chip volume (the
key driver of chip stocks in recent years).
BOTTOM LINE: PUT A TOE IN THE WATER; WE CONTINUE TO EXPECT A
STRONG 4Q98, AND THE LATE JUNE UPTICK IS LIKELY JUST A SMALL
TASTE OF MUCH BETTER BUSINESS CONDITIONS TO EMERGE LATE THIS
YEAR; FOCUS ON VITESSE (VTSS-$25.88;1), VITESSE, VITESSE, OR AMONG
LARGE CAP STOCKS, TEXAS INSTRUMENTS (TXN-$56;1) AND
STMICROELECTRONCIS (STM-$68.88;1). FURTHER DOWN THE LIST WOULD
BE XILINX (XLNX-$34.34;1), LATTICE (LSCC-$28.88;1), AND C-CUBE
(CUBE-$17.25;2).
{DRAM/Pentium Pricing Table for LB Sales}
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Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past
three years a public offering of securities for this company. B-An employee of Lehman
Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in
the securities of this company. G-The Lehman Brothers analyst who covers this company
also has position in its securities. |
