Conditions Are Ripe For Semiconductor Stocks To Rebound, Analysts Say At Informed Investors Forum
BusinessWire, Monday, July 27, 1998 at 17:27
SANTA CLARA, Calif.--(BUSINESS WIRE)--July 27, 1998--
Semiconductor stocks are at lows or very close to them and will likely
rebound over the rest of the year and into 1999, three prominent
industry experts told attendees at the 3rd Annual Informed Investors
Semiconductor Stocks Forum Saturday July 25 in Santa Clara.
Those sentiments were affirmed by executives of two Silicon
Valley chip companies presenting at the Forum, 8x8, Inc. (NASDAQ:EGHT)
and VLSI Technology (NASDAQ:VLSI) each of whom suggested order
activity is returning to normalcy after significant slides in the
first half of the year. Audio tapes of the entire Forum are available
for $48.95 from Informed Investors, 800/992-4683. Transcripts of the
three keynote speakers, by hard copy or email, are available for $25
for the set, or $15 for any individual speech.
Charles Boucher, senior semiconductor analyst at Donaldson Lufkin
Jenrette (http://www.dlj.com), said substantial evidence suggests the
semiconductor chip industry is at or near bottom of both its long-term
business and inventory correction cycles. Capital expenditures in the
businesses were way down in 1998 and should rebound in 1999. Moreover,
semiconductor stocks, he said, are currently at a steep discount both
relative to their own price history and the rest of the market as
measured by the S&P 500.
"Semis are down about 25% relative the S&P and 46% off their
52-week highs," Boucher said. "This is the closest to full
capitulation by Wall Street I've ever seen. With record low valuations
of these stocks and a bottoming of the long-term cycles ... this is a
good entry point to get into these stocks.
"Shipment rates in terms of units and revenue are in fact
bottoming in July and we expect to see that accelerate the remainder
of the year. What's most important to Wall Street is what direction
this curve is," Boucher added. "If we are correct in our hypothesis,
that we are at the bottom and there is an acceleration in the
business, then it's going to drive a rally in the stocks that is going
to happen in the very near term."
Revenue for computer memory companies has been down for three
consecutive years, 1996-1998, but Boucher expects the industry "to
come back with a vengeance in 1999" as new PC platforms amd more
sophisticated software demand greater memory capacity. Micron
(NYSE:MU) is poised to rebound, he said.
Boucher said companies that are adept in three areas in
particular -- system-level integration (systems on a chip), value of
intellectual property (adding value to chips), and communication
bandwidth, i.e., companies that can break the telecommunications
bottleneck -- are ones to watch. Among the companies best positioned
in those areas are Texas Instruments (NYSE:TXN), LSI Logic (NYSE:LSI),
VLSI, DSP Group (NYSE:DSPG), ARM Holdings (NASDAQ:ARMHY), Rambus
(NASDAQ:RMBS), Broadcom (NASDAQ:BRCM), Artisan Components
(NASDAQ:ARTI), National Semiconductor (NYSE:NSM), STMicroelectronics
(NYSE:STM), Galileo Technology (NASDAQ:GLATF), MMC Networks
(NASDAQ:MMCN), Cadence Design (NYSE:CDN), Level One Communications
(NASDAQ:LEVL) and PMC Sierra (NASDAQ:PMCS).
Boucher's four top investment picks to rise through the end of
the year are Intel (NASDAQ:INTC), VLSI, Altera (NASDAQ:ALTR) and
Xilinx (NASDAQ:XLNX).
Ron Elijah, portfolio manager at BA Robertson Stephens Technology
and Value Fund (http://www.rsim.com/funds/vgf/phil.htm), said that the
current downturn in semiconductor stocks follows a traditional pattern
in the industry. He, too, said that indications from the industry
point to a recovery that is underway already.
"Process technology is constantly changing ... it gets smaller,
cheaper, faster. That's the process Intel is going through," Elijah
said. "Computers are going to 400 megahertz, 128 megabytes. Intel is
on to the next generation. Their costs are going down and their
margins are going up toward the end of the year. This industry is
going to surge again, particularly in the Fall. The old has to get out
the way for the next generation of new products."
Ron Leckie, CEO of INFRASTRUCTURE (http://www.infras.com), a
semiconductor industry market research and information firm, said the
semiconductor equipment companies will lag the chip firms in their
recovery, but that it will no doubt come, probably by the second
quarter of 1999. Leckie said the safest stocks among the semiconductor
equipment makers are where investors should look right now -- Applied
Materials (NASDAQ:AMAT), KLA Tencor (NASDAQ:KLAC), Asyst Technologies
(NASDAQ:ASYT) and Kulicke and Soffa (NASDAQ:KLIC), among them. His
talk gave very detailed insight into the semiconductor equipment
industry.
Sunil Mehta, VP and Treasurer of VLSI, told attendees his
company's business had bottomed out and was returning to normal
conditions. A custom chip manufacturer, Mehta said VLSI's focus on
large system integration bodes well for the firm as systems on a chip
become more complex and widespread.
Paul Voois, Chairman and CEO of 8x8, told attendees that his
company's focus in videophones for consumers and the growing
videoconferencing arenas for business gives 8x8 a good future. "My
message here today is that 8x8 is more than a semiconductor chip
company. There's a lot more to us," Voois said.
Since 1993, Informed Investors has featured scores of quality
companies and industry experts at its Forums. Informed Investors
represents individual investors who collectively hold an estimated $2
billion in investable assets. For information on Informed Investors,
visit the website at www.informedinvestors.com.
CONTACT: Informed Investors
Sean Finnigan, Steve Chanecka or Tim Quast, 916/448-8222
or 800/992-4683
KEYWORD: CALIFORNIA
INDUSTRY KEYWORD: COMED COMPUTERS/ELECTRONICS BANKING
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