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

To: Gottfried who wrote (27299)	12/20/1998 6:48:00 PM
From: blake_paterson	Respond to of 70976

Semiconductors: Buy on the Dip www.iionline.com/guest/industry/art_frm.asp?target=256&coBrand=&sec=sems Analyst: Will Frankenhoff Okay, don't shoot us. In our last few reports, we've urged investors to be cautious about investing in semiconductor stocks due to limited visibility for the sector in 1999 and weak year-over-year sales comparisons. However, while we've been urging caution, stocks in the sector have been bounding forward with abandon driven by stronger-than-expected sequential sales growth during both September and October. According to the Semiconductor Industry Association's reports for those months, sales grew 4.3% sequentially, to $10.2 billion, in September and by 6.3%, to $10.9 billion, in October. These results, coupled with better-than-expected earnings at some companies, notably Intel (NASDAQ: INTC), and optimism about strong PC and networking sales in 1999, have spurred the recent rally in the sector. Intel stock was up about 3 points today (Friday), after Prudential raised its fourth quarter earnings estimate to $1.10 from $1.04 and Morgan Stanley Dean Witter made positive comments on the company. Shares of Intel, National Semiconductor (NYSE: NSM), Texas Instruments (NYSE: TXN) and Micron Technology (NYSE: MU) rose by an average of 65% since the beginning of October. Look at the Year-Over-Year Numbers While we realize that three consecutive quarters of sequential growth is heartening, we are still leery of the sector due to the fact that the September and October figures still represented declines in sales of 13.6% and 9.3% on a year-year basis. We also remain concerned that the recent increase in orders/sales has caused chip manufacturers to crank-up production rates to levels above consumption rates. Korean DRAM manufacturers are no longing closing their fabs for one week out of the month but instead are running them full out. Given that situation, coupled with increased production from Intel and Advanced Micro Devices (NYSE: AMD), Hambrecht & Quist analyst Gus Richard believes that microprocessor production will reach between 33-35 million units in the fourth quarter, 3-5 million units, or 10-15%, more than expected consumption. Analysts, however, have been raising their earnings estimates for some companies in the industry over the past few weeks on the strength of reports that third quarter PC sales worldwide rose 12% from the previous quarter. Compaq (NYSE: CPQ) posted revenue growth in excess of 35%, which bodes well for chip makers. Intel, National Semiconductor and Advanced Micro Devices all recently had their earnings estimates raised. Does three consecutive months of sequential revenue growth signal that the semiconductor industry has finally bottomed out and is starting a rebound? We believe, as stated previously, that the industry will experience a short-term bounce on the demand generated during the historically strong fourth quarter but this should peter out shortly thereafter. Bottom Line: While we remain cautiously optimistic for a resurgence in mid-late 1999 and believe that the sector remains attractive from a long-term, value perspective, we believe that the rally is more a case of over-buying on short-term news. Wait for the high-flyers to lose a little altitude before catching a ride.