Shares in Chip Makers Conexant, Broadcom Soar to Record Highs
Investors seemingly can’t get enough of communications-related chip makers, particularly two Orange County semiconductor giants.
Shares of both Broadcom Corp. and Conexant Systems Inc. surged to record highs Wednesday, continuing a powerful recent advance in those stocks and those of many other chip makers.
Broadcom has rocketed 54% since Oct. 19, reaching $168.63 on Wednesday on Nasdaq. Conexant’s stock has gained 84% in the same period, to $58.56, also on Nasdaq.
The companies are among the leaders in the market for computer networking chips, a particularly hot chip segment.
Analysts say investors’ enthusiasm for the stocks is based on soaring consumer demand for sophisticated data communications devices, such as cellular phones, and high-speed networks for accessing the Internet at work and at home.
“It’s a really hot time for this market segment,” said Jeff Lipton, a financial analyst who tracks the semiconductor industry for Hambrecht & Quist. “Sales and demand are up. So is the performance of many of these companies.”
In addition, many semiconductor makers are tweaking their chips to fit into products other than computers, such as consumer electronics, medical diagnostic equipment and automobiles.
The sector’s latest run-up has been fueled in part by last week’s report by the Semiconductor Industry Assn. that worldwide chip sales surged to $12.7 billion in September, up 24% from a year ago and up 6.4% from August.
In Japan and other Asian markets, sales grew 37.4% and 34.5%, respectively, from a year earlier. Sales in North and South America were up 17% over last year.
That’s a marked turnaround for an industry that struggled to overcome a slump for most of last year amid Asia’s economic crisis.
Conexant and Broadcom are among the leaders of the pack.
Conexant, a chip maker based in Newport Beach, returned to profitability much earlier than expected, after being shed by Rockwell International a year ago.
Conexant blew past analysts’ earnings projections last month when it announced a fiscal fourth-quarter profit of $38 million, or 18 cents a share. Analysts expect profit for its fiscal 2000 first quarter to be about $39 million, or 20 cents a share, versus a loss of $57 million a year ago.
Broadcom reported third-quarter results last month that put it on track to become the fastest-growing chip maker ever. It is on a pace to top $500 million in annual sales in only its second year as a public company. By comparison, it took Intel Corp. eight years to accomplish the same feat. Broadcom’s third-quarter profit soared fivefold as sales more than doubled.
Analysts expect Irvine-based Broadcom’s profit to climb 115% this year and 47% more next year.
But many chip stocks have risen so quickly that the shares are already valued at very high price-to-earnings ratios, even assuming strong earnings in 2000, analysts note.
The advance in Broadcom’s stock has spurred expectations of a stock split, but the company declined to comment on the idea.
Other communications-related chip stocks that have been on fire recently include PMC-Sierra Inc., a Canadian maker of high-speed networking chips. On Wednesday, its shares surged $6.88 to $106.69 on Nasdaq. Applied Micro Circuits Corp. of San Diego hit a record high on Wednesday, closing at $85.25, up $2.56 on Nasdaq.
Texas Instruments Inc., the leading supplier of digital signal processing chips, hit a 52-week high last week and neared it Wednesday, rising $3.94 to close at $97.38 on the New York Stock Exchange.
“There’s no sign of it letting up in the near term,” said Mark Edelstone, an analyst at Morgan Stanley Dean Witter & Co.
William J. Ruehle, Broadcom’s chief financial officer, said: “What you’re seeing [in the stocks] is tremendous investor confidence in the Internet economy and everything connected to it.”
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Mad for Chips
Most semiconductor stocks zoomed again Wednesday amid soaring optimism about sales and earnings growth. But even assuming strong earnings growth in 2000, many of the stocks are already very highly valued. A sampling of chip stocks, and the stocks’ price-to-earnings ratios based on analysts’ consensus earnings-per-share estimates for 2000:
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52-week 52-week Wed. close ’00 Stock (ticker symbol) high low and change P/E Broadcom (BRCM) $161.31 $42.00 $168.63, +$9.75 136 Conexant Systems (CNXT) 56.50 6.50 58.56, +4.56 75 Intel (INTC) 89.50 46.69 79.00, --1.06 30 Lattice Semiconductor (LSCC) 45.00 15.44 45.13, +2.38 26 Motorola (MOT) 116.75 52.31 116.75, +6.25 38 Vitesse Semiconductor (VTSS) 50.25 16.31 48.13, +0.38 74 Texas Instruments (TXN) 98.63 31.13 97.38, +3.94 45 Xilinx (XLNX) 90.00 23.88 91.06, +5.56 50
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Note: 52-week highs don’t include Wednesday’s trading.
Earnings estimates from IBES International and Zacks Investment Research
Source: Bloomberg News
