From WSJ.......I don't think I ever saw this posted..
March 15, 1999
New Chips Bring Hope to Some
Tech Stocks
By CAROLYN WHELAN
Technology stocks have been laggards of late, as major
technology companies like Dell Computer, Advanced
Micro Devices and 3Com announced disappointing sales
or earnings as the first quarter approaches its end.
In addition to that and a seasonally weak period,
investors have shied away from tech stocks because of
some key product transitions that may be pushing sales
into the future.
In the weeks and months before a product
debuts, buyers may hold off on purchases
of it and related products. But the release
of a new product can unleash pent-up
demand, and boost the company's stock.
"Every time you change a product it's a new round in the
boxing game," says Henry Voskoboynik, a vice president
at Forum Capital Markets. "The company with the best
technology has the best chance of winning the next
round."
That's why some investors are ignoring short-term trends
and trying to identify winning technologies. Roger Kay,
an analyst at the International Data Corporation, sees
Intel's new core logic chipset-- commonly known as the
820, or its code name, Camino--as the "next big thing" in
technology.
Its release could help ignite dynamic random access
memory (DRAM) chip maker Rambus, kickstart the
struggling disk-drive business and boost the fortunes of
graphics chip makers. And though it hasn't been
officially announced, Camino is slated to debut this fall.
The new core logic chipset
may, in fact, have a bigger
immediate impact than the
newly released Pentium III
or even Windows 2000
(Microsoft's long-delayed
new operating system for
servers and workstations),
which is expected later this
year. Kay believes adoption
of both those new products will be slower than usual.
Camino, on the other hand, directly affects graphic
speeds, spurring the development of new graphics chips
and software games.
Loosely speaking, core logic chipsets acts as a traffic
cop between the microprocessor and other systems in a
computer. It directs the data flow between the processor,
the memory subsystem, the PCI Bus (which gives access
to the hard disk drive) and the graphics subsystem.
"It's a pretty substantial upgrade in architecture," says
Kay. The Camino will allow graphics to run twice as
fast as they do on today's computers.
Intel hasn't actually said that it's releasing a new core
logic chipset. But three people familiar with the product
tell Barron's Online that Intel is working feverishly on it.
Among Camino's probable beneficiaries are Rambus, a
$1.6 billion DRAM maker that works closely with Intel
and , of course, the high-end graphics chip makers.
Rambus's DRAM is critical to making Camino work at
optimal levels, and Intel has endorsed the Rambus
architecture. That's a key reason the stock is getting
important support on Wall Street.
"It looks good to me like a pretty good investment," says
Drew Peck, a technology analyst at SG Cowen, who has
a Buy rating on Rambus stock. "As long as Intel stays
the course, we're barreling ahead towards Rambus as a
standard."
Over the last two months, three firms -- BancAmerica
Robertson Stephens, Morgan Stanley and Hambrecht and
Quist -- have upgraded their ratings on Rambus to Buy.
At Monday's closing price of 71 7/8, it's about a third off
its 52-week high of 109 1/2 that it set in September.
Peck's earnings estimate for Rambus is 32 cents a share
in the fiscal year ending September 1999, rising to $1.12
a share next year, and then more than tripling in fiscal
2001, to $4.00 a share. Based on his figures, its P/E of
62x for 2000 and 17x projected earnings for fiscal 2001
are significantly less than its rapid short-term growth
rates and its projected long-term annual earnings growth
of 75%.
Makers of graphics chips
also are eagerly awaiting
Camino. Already,
companies like S3 and ATI
have said they'll build their
own chipsets to handle the
faster and cheaper new 2D
and 3D programs Camino
would allow. The PC
graphics chips market is
expected to more than double over the next three years,
to $ 4.3 billion in 2002 from $2 billion today, according
to San Jose-based Dataquest, a unit of Gartner Group.
"ATI has a pretty good market share and pretty
impressive product offerings," says Voskoboynik of
Forum Capital. "They would probably be among the
better positioned to win the next round."
He's also bullish on S3,which he says is undergoing a
turnaround. After disappointing sales of its Savage3
chip, he said, the company, which has a market
capitalization of $410 million, installed new
management and has been fairly successful with a new
product, its recently released Savage4 (S4).
For revenues and earnings, the Savage4 chip is
significant. It "puts them back on recovery," says Dan
Scovel, a semiconductor analyst at Fahnestock &
Company, who has a Buy rating on the stock. His
12-month price target of 15 is almost double today's 8.
According to First Call, analysts expect the company to
lose 51 cents a share in 1999 and then earn 88 cents next
year, resulting in a very low P/E of nine times earnings
for 2000, which is significantly less than S3's projected
long-term growth rate of 22%.
Of course, there could be some glitches. Camino's
release could be further delayed. And though Rambus is
clearly the market leader, some PC companies consider
its DRAMs pricey. And some experts, like Voskoboynik,
are cautious on the whole graphics chip industry because
of fierce competition, price wars and weak demand from
Asia.
Still, says Scovel, "most people assume that Rambus
will be the dominant architecture."
And there aren't too many other technology companies
that could boast of that. |
