Not a bad week after all for chip makers

Duncan Martell

SAN FRANCISCO: It wasn't such a bad week after all for the semiconductor

industry.

The world's largest chipmaker, Intel Corp., kicked things off on Monday,

reporting third-quarter profits that topped diminished expectations and forecast

modest sales growth into the fourth quarter, typically the industry's strongest.

A few examples: Speciality Atmel Corp. had net income that more than

quadrupled as sales rose 56 per cent. And last week, Advanced Micro Devices

Inc., when it reported earnings, said it now expects to sell three million more

microprocessors this year than earlier forecast.

By Thursday the news from Intel, other chipmakers and companies such as

data-storage king EMC Corp., server-computer company Sun Microsystems Inc.,

stronger-than-expected results from Microsoft Corp. and fiber-optics maker SDL

Inc. was enough to send investors shopping.

"We heard all of the bad news first and then, later on, you get some

reinforcement that things aren't totally falling apart," said Independence

Investment Associates portfolio manager John Forelli. "We're getting a

relief rally."

Two-day rally



The two-day technology rally helped major market indices recover from swoons
earlier in the week. On Friday, the Nasdaq Composite Index jumped 64.54 points,

or 1.89 per cent, to 3,483.14 and ended the week with a gain of 5 per cent. The

Dow Jones Industrial Average climbed 83.61 points, or 0.82 per cent, to

10,226.59 while the Standard & Poor's 500 Index added 8.17 point, or 0.59

per cent, to 1,396.93.

Another bright spot was Intel's reassurance in its earnings conference call

on Tuesday that it was indeed still planning to spend $6 billion - 71 per cent

more than in 1999 - this year on new chip plants, upgrading existing ones and

buying the multimillion-dollar gear needed to turn out semiconductors.

"If they're not cutting capital spending, they're not that bearish about

the future and Intel is one of the Scrooge-iest companies out there," said

analyst David Wu at ABN Amro after Intel's earnings report.

Santa Clara, Calif.-based Intel said that net income before

acquisition-related charges rose to $2.29 billion, or 41 cents a share, from

$1.90 billion, or 27 cents a year ago, topping the 38 cents a share that

analysts had forecast. Sales rose 19 per cent to $8.73 billion and it said that

fourth-quarter revenue would rise 4 to 8 per cent from the third.

"We think again it could be a good, solid quarter but certainly we're

not forecasting a blowout," said Andy Bryant, Intel's chief financial

officer in an interview following the earnings release.

"The bottom line here is people won't have to change their (estimates)

and you feel like with all the bad news out there here's something people can

latch on to," said analyst Dan Niles at Lehman Bros following the report.

Buoyed by the success of its Athlon processor that is more powerful than

Intel's speediest, AMD on Oct. 11 reported third-quarter net income before gains

of $219.3 million, or 64 cents a share, compared with an operating loss of $99

million or 36 cents a year ago. Sales almost doubled to $1.21 billion from

$662.2 billion.

"Breathing room"



Although it's clear that we're not out of the woods yet, the fourth quarter is
shaping up to be better than most people were thinking after Intel warned Sept.

21 that sales in the third quarter would be less than half the 9 per cent to 12

per cent analysts had forecast for the company.

"I would imagine they've given themselves enough breathing room so they

have a high level of confidence in the 4 per cent figure and 8 per cent is a

stretch goal," said analyst Ashok Kumar of US Bancorp Piper Jaffray about

Intel's fourth quarter.

With the market so volatile that Intel shares dropped 22 per cent when it

said sales would be less than forecast and given the expectations that investors

have placed on high-tech stalwarts, companies like Intel, Microsoft, EMC and Sun

could use some breathing room.

(C) Reuters Limited 2000.