Goldman Sachs, one of Wall Street's most renowned stock brokerages, appeared
to declare the current recession in the semiconductor industry to be all but
over. One of the firms' leading chip industry analysts, Terry Ragsdale urged
investors to "Buy chip stocks now’. ‘The recovery writing is on the
wall," the headline read in Ragsdale's report."
"We don't see how investors will be able to resist the inflection
point," said Ragsdale who added that conditions in the semiconductor
industry are no longer universally negative, and fundamentals are likely to
strengthen in the fourth quarter of this year even if the improvement is only
inventory-related. "The recovery may be uneven this time, limited by the
timing of demand reacceleration and historically high valuations, but we think
the stocks are headed up for now."
On Wall Street, Ragsdale's call to purchase fell largely on deaf ears as chip
stock ended the day lower after a brief and small up-turn after the report was
first released. There are continued reports that the industry is sitting at what
is presumed to be a bottom. How hard that bottom will turn out to be remains
uncertain. Skeptics point to a similar Merrill Lynch report in late July that
forecasted an upturn in chip activity. The next week, Lehman Brothers said it
expects Intel to "detonate a price bomb" on Advanced Micro Devices.
For the most part, more bad than good news is coming out of the chip
industry. Chipmakers who sell to the PC industry are expected to see their sales
to that sectors plunge 24 per cent this year, according to the latest industry
forecast issued by International Data Corp. Worldwide PC chip sales will fall to
$38 billion from $50.3 billion in 2000. The desktop PC semiconductor market will
be hardest hit, the report said, showing revenues sliding to $27.3 billion, from
$38.6 billion last year. Worldwide microprocessor revenue will fall to $22.2
billion by the end of 2001, from $27.1 billion in 2000. DRAM revenues will
decline from $12.4 billion to $6.6 billion during the same time. "PC
semiconductor suppliers have experienced a complete reversal of fortune,"
said the IDC report. "From March through August 2000, they worked
feverishly, struggling to fulfill extraordinary demand, but since then demand
has plummeted."
Most troublesome, IDC speculated that the market would not recover until
after 2005. And while Intel CEO Craig Barrett said last week that computer
shipments should improve later this year, he also forecast that
telecommunications equipment sales would probably not step up until late 2002.
"Computing is more stable. We can expect some improvement in the second
half of 2001. But communications is still in sick bay. Over-investment will take
a year to wear off."
Barrett said that traditionally telecom companies have spent about 17 per
cent of revenues on new equipment, but last year that jumped to 35 per cent.
"It was unprecedented and unsustainable. It will be the end of 2002 before
the sector starts to grow again."