Conditions Are Ripe For Semiconductor StocksTo Rebound, Analysts Say At
Informed Investors Forum
July 27, 1998 05:06 PM
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. EGHT and VLSI Technology
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 , 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 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 , LSI Logic , VLSI, DSP Group , ARM Holdings ARMHY , Rambus
RMBS , Broadcom BRCM , Artisan Components ARTI , National Semiconductor
, STMicroelectronics , Galileo Technology GLATF , MMC Networks MMCN ,
Cadence Design , Level One Communications LEVL and PMC Sierra PMCS .
Boucher's four top investment picks to rise through the end of the year
are Intel INTC , VLSI, Altera ALTR and Xilinx XLNX .
Ron Elijah, portfolio manager at BA Robertson Stephens Technology and
Value Fund , 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 , 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 AMAT , KLA Tencor
KLAC , Asyst Technologies ASYT and Kulicke and Soffa 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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