Here is some good news for a change
Conditions Are Ripe For Semiconductor Stocks To Rebound, Analysts Say At
Informed Investors Forum
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.
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