Tomorrow Never Dies for Semiconductor Stocks
Staff -- Semiconductor International, 3/1/1998
Continued strong demand from
the personal computer industry, increased sales to the communications sector and a firming
of memory chip prices should result in a solid year for most semiconductor companies and
stocks, according to a team of semiconductor industry analysts for NationsBanc Montgomery
Securities.
"We believe semiconductor stocks will outperform the S&P 500 in 1998," predicted Jonathan Joseph, a senior research analyst who covers such companies as Intel, Texas Instruments, Micron Technologies and NeoMagic.
Joseph's comments came at NationsBanc Montgomery Securities' 15th Annual Technology Week investment conference, held in late January in San Francisco, Calif.
Joseph based his stock price prediction on the correlation between expected strong demand for chips and an expected reduction in semiconductor capital spending. Historically, when semiconductor capital spending falls but demand for semiconductors rises, semiconductor stock prices rise as well, Joseph said.
In 1998, capital spending is expected to drop 5%, while demand is expected to increase by 10%, suggesting a good year for semiconductor stocks. Joseph forecast "sustained, double-digit growth" of demand for chips used in personal computers, including microprocessors, digital signal processors (DSPs), microcontrollers and microperipherals. He also expects increasing demand for semiconductors used in digital wireless telephones and cellular networks, as communications networking software is increasingly embedded directly on semiconductors.
In the memory chip markets, unit sales are rising, while prices are firming after a late collapse of DRAM prices in 1997, Joseph said. He expects DRAM prices to firm as the year goes on. Joseph also addressed investor concerns about the effect of Asian economic problems on the semiconductor industry. Overall, he said he believes that semiconductor stocks have already absorbed the bad news from Asia. He said that concerns about slowing demand from Asia are real, and that the Asian "flu" could spread to China and Japan.
On the positive side, Joseph noted that major Korean chipmakers, such as Samsung, are now slashing their capital spending because of their inability to borrow, and as a result, they will not be able to add capacity that might have put further pressure on commodity chip prices.
