Bellwether Chip Stocks Slide Anew
Semiconductor stocks this year led the tech sector on the way up, the way down, and the way back up. Now they’re in trouble again.
The SOX index, a Philadelphia Stock Exchange index of 16 major chip-related stocks, plunged 6.4% on Wednesday to close at 1,034.20, its lowest since May 31.
That helped fuel another broad decline in tech shares. The Pacific Stock Exchange index of 100 major tech issues fell 1.9% to its lowest close since late May as well.
Even though chip demand worldwide still appears to be booming, investors in recent days have turned far more suspicious about how long the boom will last, and how good future chip-company earnings will be.
What’s more, although companies such as Lattice Semiconductor (ticker symbol: LSCC) and Linear Technology (LLTC) have reported robust second-quarter earnings and forecast strong demand, giants such as Texas Instruments (TXN) merely met or slightly exceeded Wall Street expectations.
“The truth is that the earnings reports of the past week or so from a lot of the higher profile names didn’t dramatically exceed expectations,” said veteran chip analyst Drew Peck at SG Cowen. “This is in contrast to the past few quarters where every company big and small was blowing out the numbers.”
Among the big-name losers Wednesday were Texas Instruments, down $3 to $64.06, falling back toward the five-month low of $63.50 it hit last Friday; Micron Technology (MU), down $4.25 to $82.50; National Semiconductor (NSM), down $4.25 to $39.88; and chip-manufacturing-equipment maker Novellus Systems (NVLS), down $5.94 to $52.25.
But two stocks in particular were hammered on Wednesday:
* LSI Logic (LSI) slid $7.88 to $32.63, its lowest since January. Late Tuesday the company reported second-quarter sales that missed most analyst forecasts, even though per-share earnings results matched expectations.
In part the company is a victim of the industry’s success: LSI said it can’t get all the parts it needs to make chips. Now, the company’s plan to boost manufacturing capacity to meet demand will lower profit margins. Brokerage Merrill Lynch on Tuesday cut its 2001 earnings estimate for LSI to $1.68 a share from $1.84.
Merrill also cut its price target for the stock to $60 from $100.
* Shares of Rambus (RMBS) plunged $9.50 to $75.50 on Wednesday. The stock was hit after the company, which licenses memory-chip performance-enhancing technology, said Intel (INTC) ended its exclusive supply relationship with the company and said it was designing a chip set for its upcoming Pentium 4 processors that will support new types of less-expensive memory technology.
“This is the beginning of the end in terms of Rambus’ supposed ability to take 100% of the DRAM market,” said Dan Niles, a Lehman Bros. analyst. DRAM--or dynamic random-access memory--chips are used to store frequently used data and programs.
Meanwhile, Wall Street technical analysts are worried by what they see on chip stocks’ price charts. Several stocks--including Rambus, Altera (ALTR), Xilinx (XLNX) and Applied Materials (AMAT)--have slipped below their 50-day moving averages in the last week or so. The drops generally have come on heavy trading volume, a sign that institutions are lightening their holdings.
Many stocks also have fallen near key “support” levels. These are points at which buyers have emerged in past declines, helping the stocks to right themselves. Thus, if the stocks can’t stabilize at current levels, it could signal further weakness ahead.
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Tech: Here We Go Again?
Semiconductor stocks helped lead the April tech-sector collapse, then helped power the rebound in the sector in May and June. Now, semiconductor issues are again leading tech shares lower again.
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Philadelphia Stock Exchange index of 16 major chip-related stocks, weekly closes and latest
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Wednesday: 1,034.20
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Source: Bloomberg News
