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To: sandstuff who wrote (40879)	11/14/1998 12:50:00 PM
From: DJBEINO	Read Replies (1) \| Respond to of 53903

Semiconductors: Theory of relativity Jonathan Joseph; NationsBanc Montgomery Securities LLC The Philadelphia Semiconductor Index (SOX) has risen more than 50% in four weeks. One incredulous investor I met at the American Electronics Association meeting in San Diego last week just shook his head in disbelief. He wasn't the only smart guy who missed the move. Investors are beginning to discount the recovery in the semiconductor market. But markets don't need good news, they only need news that's not as bad. And they got it, mostly as the result of a strong rebound in microprocessor sales and firming DRAM prices. A week ago, the Semiconductor Industry Association released data showing that semiconductor shipments declined 13.5% year over year in September, compared with a decline of 15.7% in August against the year-ago period. Just a month ago, Japan, Southeast Asia, Russia, and other dysfunctional economies threatened to drag the United States into a recession. Then two things happened: The Federal Reserve and other central banks cut interest rates; and investors began to believe the Japanese economy, Russian mafia, and American hedge funds wouldn't really drag us into some deep black hole. Being linked to the economic cycle, semiconductors have responded accordingly. So what to do now? We remain buyers of semiconductor stocks, even though many stock prices are bumping against or even surpassing our price targets. Here's the simple reason: We know how bad it can get, but we don't know yet how good it can get. Many executives believe the current semiconductor downturn is the worst seen in 30 years. Most of it has been driven by excess capacity. But firming DRAM, SRAM, flash, power MOSFET, and even programmable-logic prices are telling us the industry has headed into a capacity-absorption mode. In addition, most of Asia, which was in no small way responsible for the excess capacity, continues to suffer a financial hangover, which should keep at bay a repeat of the excesses of recent years, at least for a while. Finally, there are important nonsector reasons why the stocks can go up. Most portfolio managers are still lightly invested in semiconductors. And, given that earnings comparisons are beginning to turn positive, semiconductors will begin to look more attractive than some other technology sectors. Also, given the good relative performance, "window dressing"-that is, selling off losers and buying winners before year's end-may be a cover-your-derriere strategy. After all, it's been a pretty tough year for all of us. Copyright ® 1998 CMP Media Inc. techweb.com