Here is some more insight into Wall Street's current opinion of the Semiconductor sector from TheStreet.com.
[Note this is only part of the entire article - thestreet.com - which requires a subscription to receive.]
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Top Stories: Not So Chipper
By Eric Moskowitz
Staff Reporter
7/2/98 10:27 AM ET
Semiconductor investors are getting antsy. "It's been too
long," they say, as they watch all those gleeful Internet
investors get rich -- and then richer. Since last August, the
Hambrecht & Quist Internet index has soared 96%, while
the Philadelphia Stock Exchange Semiconductor Index
(SOX) has plunged 37%. Semis got a boost from analysts
earlier this year when many of them determined that the
Asian problem was over, but that all ended when nearly
every company in the industry preannounced before the
March-quarter earnings period. So much for the analysts.
Well, almost all the analysts. Merrill Lynch's Thomas
Kurlak -- long the industry's ax -- has bounced the sector
like an artfully played yo-yo. After he hinted in a June 16
report that investors may want to start building their
investment positions for 1999, anxious investors bought up
stock immediately, pushing the SOX 7.5% higher over the
past two weeks. Tuesday morning, however, Kurlak took a
step back, saying that the upcoming second quarter would
be weaker still, as prices continue to plummet. "The
steepest part of the semiconductor slowdown has begun and
is currently trending downward," he told clients. The SOX
was down more than 4 points, or 1.7%, to 245.93 in trading
Tuesday, although it rebounded 2.8% yesterday.
When we looked last month, the outlook for the semi sector
wasn't great. Since then, it's become downright bleak.
Semiconductor bookings, which have been declining every
month this year, are now down 56% since July of last year,
says Dan Hutchenson, who tracks semi equipment stocks
for VLSI Research. He notes that while billings are up,
bookings are way off -- and that's a pretty grim statistic.
"The only worse time I can remember is when bookings were
down 90% over a four-quarter period in 1985," says
Hutchenson. "Second-quarter earnings are going to be
bloody."
Analyst James Barlage of Salomon Smith Barney also
finds it hard to muster much confidence about the group's
near-term prospects. He estimates that the worldwide
semiconductor market will contract by 7% in 1998, but he
does look for a resumption of revenue growth in the fourth
quarter of this year. "Although considerable uncertainty
continues to exist regarding Asia-Pacific and Japan, if these
regions don't weaken further ... we could see a bottoming of
semiconductor shipments this summer." Not exactly
bursting with confidence, is he?
entories seem to have pretty much been depleted." This
means that the big box makers, such as Compaq
(CPQ:NYSE), have been slashing prices simply to get the
machines off their shelves. The tactic has worked: Industry
observers believe the No. 1 PC manufacturer has reduced its
inventory channel from 10 weeks earlier in the year to around
four recently.
Even so, analysts must be growing weary of rescheduling
their estimates of the group's turnaround. Last fall, most
were looking for a resurgence in orders by this spring. That's
since been pushed back to the end of 1998, with Kurlak
pointing to December as "the pivotal month" for the sector.
Morgan Stanley Dean Witter analyst Mark Edelstone
remains upbeat, in spite of having had to postpone his
bullish Intel (INTC:Nasdaq) scenario by several months.
"We continue to believe that industry fundamentals will
improve in the second half of the year," says Edelstone, who
slapped a strong buy rating (and a 110 price target) on Intel
April 15. Though the analyst believes the industrywide PC
inventory correction will end shortly, sending Intel on a sharp
rebound, the stock is currently trading at 74, no higher than
it was when he upgraded the bellwether chip maker. (His
firm has participated in one of the company's recent public
offerings.)
It may not be exactly confidence-inspiring to watch the
world's smartest analysts struggle to pin down a date for the
recovery, but if they don't have a clue, what chance does the
average investor stand?
Northern Trust's Burkart -- who maintains a buy on a number
of semiconductor stocks as long-term "core" holdings --
adds that he does not expect to hear a lot of upbeat remarks
during the June-quarter conference calls: "We still have a
serious oversupply in DRAMs and memory prices, so we're
not looking for a turnaround this quarter."
Dean McCarron, principal of Mercury Research, a
Scottsdale, Ariz.-based tech research firm, echoes these
thoughts and goes one step further. "All this weak market
activity shows that we are in the midst of another down
cycle." The last down cycle in the industry was from 1994 to
1996, he says, due to memory-chip pricing-related
concerns. McCarron, who has been following the sector
since 1986, reminds investors that these down cycles can
last anywhere from three quarters to two years. And for
those thinking that we're at least past the halfway mark,
McCarron has a sobering thought. He believes that this
current cycle began in the first quarter of this year -- and not
back when the semi stocks first started dropping last
August. Uh-oh.
While earnings estimates are way down over last year, it's
taken analysts almost a full year to realize the extent of the
damage done by a combination of intense competition,
excess supply and heavy pricing pressure in the industry.
Oh, and don't forget a full-scale bout of the Asian contagion.
No matter what happens, look for a lively round of
conference calls in coming weeks.
...
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Probably explains a lot.
Chip
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