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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Duker who wrote (25678)	10/23/1998 1:11:00 PM
From: KM	Respond to of 70976

Dueling Analysts on Semi-Equips (Street.com) Chip equipment makers and dueling analysts Indeed, chip equipment makers were notably higher this morning, despite an announcement by industry leader Applied Materials (AMAT:Nasdaq) that it will take a fourth-quarter charge of $285 million, or 56 cents a share, resulting in a loss in the quarter. The 20-analyst consensus calls for operating profits of 2 cents a share vs. a gain of 49 cents the prior year. The charge was expected and Applied Materials was lately up 1.5%. Overshadowing the announcement, apparently, is a sector upgrade by BancBoston Robertson Stephens. Lead analyst Sue Billat upgraded Applied Materials, ASM Lithography (ASMLF:Nasdaq), Etec Systems (ETEC:Nasdaq) and KLA-Tencor (KLAC:Nasdaq) to buy from long-term attractive. She reiterated existing buy ratings on Novellus Systems (NVLS:Nasdaq) and Teradyne (TER:NYSE). Novellus was the laggard in the group, having recently turned fractionally negative after rising early on. Meanwhile, Etec was higher by 11.1%, KLA-Tencor was up 5.6%, Teradyne was higher by 3.7% and ASM was up 3.6%. Some chip makers were up as well, notably Advanced Micro Devices (AMD:NYSE) and Micron Technology (MU:NYSE), each higher by more than 2%. The gains were helping push the Philadelphia Stock Exchange Semiconductor Index up 1.3%. By comparison, the Nasdaq 100 was lately up just 0.04%. In addition to overcoming AMAT's news, the BancBoston upgrades were winning the war on the analyst front. Concurrent to the Robbie Stephens upgrade, Merrill Lynch issued a far more dour forecast on many of the same names. "We thing the sharp rally in semiconductor equipment/materials stocks is about to stall out," Merrill analyst Mark FitzGerald wrote this morning, suggesting the group could fall 20% to 25% from current levels. FitzGerald acknowledged orders are "close to trough" but said "valuations are at record levels when compared with previous trough valuations in 1996 and 1991." He also noted an absence of insider buying at the semiconductor equipment makers. In an interview with TheStreet.com, Billat of Robbie Stephens countered FitzGerald. "Companies like [Applied Materials] and Novellus have managed exceptionally well through a difficult downturn," she said. "They are much stronger from a standpoint of market penetration, product lines, and economies of scale [than at past trough points]. As the industry leaders they deserve a higher multiple, given the outlook going forward." As for the issue of insider buying (or lack thereof), Billat said: "In 25 years of covering this industry I have not seen that as a matrix." The analyst acknowledged the sector is "highly volatile" and susceptible to "some profit-taking along the way." Still, she recommends additional purchases on any pullbacks. "I think we've passed the trough and believe than an inflection point has occurred," Billat said. In a follow-up call, FitzGerald redirected the issue back to fundamentals. "I think we're close to a bottoming in orders but I don't see them picking up anywhere soon, especially if we get a significant slowing in European or North American economies," he said, noting Merrill Lynch economists are forecasting just that. He recommends investors sell into the ongoing rally. Moreover, lead times for semiconductor manufactures -- which measure the length of time it takes for orders to be delivered -- are only two weeks, compared with eight-to-10 weeks historically, the analyst said. "It's down because of excess capacity in the industry," he said. "You won't have sustainable improvement in profit outlook until lead times start marching out. That's the earliest clue the turn for the equipment companies is six months down the road and it hasn't happened yet." The analysts do agree a bottom has occurred. The main point of contention is when the recovery begins in earnest and if investors can (or should) wait before reinvesting in the sector. As Billat said: "Obviously we take a different approach [than Merrill] and it looks like the market is agreeing with us." For now, at least. Among other indices, the Dow Jones Transportation Average was up 8 to 2803, the Dow Jones Utility Average was down 3 to 301 and the American Stock Exchange Composite Index was up a fraction to 629. The price of the 30-year Treasury bond was lately down 10/32 to 105 7/32, its yield rising to 5.16%. (For more on the fixed-income market, see today's midday Key Numbers