Placing a Wager On the Chip Sector
After taking a sustained beating from analysts this summer, the semiconductor sector is sporting a shiner.
Some of the biggest names in the business suffered a rash of well-publicized downgrades from chip analysts last month, sending the Philadelphia Stock Exchange Semiconductor Index down just over 14% in July. Better earnings offer companies no solace: The same day Intel Corp. reported a 96% jump in second-quarter net income, its shares tumbled 11% over concerns about inventory and profit margins.
Merrill Lynch recently downgraded chip stocks to "underweight" from "overweight," and UBS last week downgraded semis to underweight from a "neutral" rating. Morgan Stanley said it expects Intel's third-quarter revenue to come in below estimates. Deutsche Bank cut Intel's rating to "hold" from "buy," Lehman trimmed its earnings targets, and Merrill downgraded the company to neutral from buy.
And yet, industry groups are talking about huge gains for chip sales this year, and hopes for capital spending and economic growth are still primarily upbeat. Global semiconductor sales in the second quarter rose 9.5% from the first quarter to $53.45 billion, according to the Semiconductor Industry Association. In June, sales were up 40% year over year. As such, there are still those on Wall Street who believe that chip companies will finish 2004 in good shape.
Barry Ritholtz, chief market strategist at Maxim Group in New York, an investment bank with about $5 billion under management, thinks chip companies could shine in the fourth quarter thanks to tax incentives that end this year, motivating businesses to spend on technology before the sunset. He thinks that growth in chip sales could come even if the broader U.S. economy slows, as it recently has been showing signs of doing.
WSJ: Semiconductor Equipment and Materials International predicted sales for suppliers to the chip industry will leap 63% this year, and the Semiconductor Industry Association projects global chip sales will rise by about 29%. Do you agree with all the recent pessimism coming from Wall Street about the outlook for the chip sector?
Mr. Ritholtz: To use a recently popular phrase, this sounds like a bit of groupthink to me.
I don't agree with the specific pessimism for the rest of 2004, but my macroeconomic model shows some real problems by mid- to late 2005. That's not specific to semiconductors -- it's more a [question] of, how will the economy keep going once the "pig is through the python," once all of the tax and interest-rate stimulus are gone? With higher interest rates, increased commodity prices, raised taxes regardless of who wins in November and the stimulus fading, why will the recovery keep expanding?
Longer term, I think the semiconductor cycle can remain somewhat insulated from the broader economy. As long as demand for iPods, laptops and phones remains robust, semiconductors should do well. It would take the economy to grind to a full stop to derail the semiconductor cycle here.
The U.S. is but one of the world's major economies. Asia -- especially China, but also Japan's recovery, along with healthy outlooks in Singapore and South Korea -- will continue to stoke demand for semiconductors. Even Europe, whose economy has lagged the rest of the world's recovery, shows a continuing demand for electronics. My expectations for a robust semicycle assumes that Europe maintains a humdrum growth pace. If their economy ever woke up, semiconductor sales would soar.
As long as the Asian-rim recovery keeps humming along, semiconductor sales can still grow, even if the U.S. recovery remains anemic.
Do you think Intel's outlook -- which predicted revenue growth of about 10% in the third quarter -- indicates chip and chip-equipment stocks may avoid the fate Merrill laid out for them? There still seemed to be concerns about profit margins and inventories.
I think some of Intel's problems are due to the real competition developing in the CPU space. One of the unsung aspects of Intel's margin pressure was Advanced Micro Devices. They have matured into a real competitor, and are no longer just an also-ran. Their new server chip got rave reviews, is well priced, and will migrate to the desktop.
Some analysts are concerned that a glut of inventory capacity may hurt pricing power. What do you see happening?
I am expecting a surge of orders in the fourth quarter to take advantage before [the] sunset on the accelerated depreciation-tax rule passed a few years ago. It behooves big buyers of hardware and capital improvements to step up and make their buys in 2004 rather than wait until 2005. The semiconductor companies' expectations of this surge helps to explain the inventory build-up: You have to make hay while the sun is shining, and it will shine brightly in the fourth quarter.
Of course, this sort of "reverse channel stuffing" could hurt sales in 2005. That's the law of unintended consequences.
Historically, what kind of performance have chip stocks had at this stage in an economic recovery?
It's hard to make any sort of comparison between this cycle and any previous cycle. There has been incredible post-bubble damage, 9/11, unprecedented stimulus and a war -- all the while with very tepid job creation. I simply cannot find an analogous era with which to compare the cycle to.
The soon-to-be-gone accelerated depreciation will be the driver in the fourth quarter. I'm looking for a bounce into the end of the year, and possibly the first or second quarter of 2005.
How about valuations?
Tech valuations are usually too high. The question is, are they absurdly overpriced, or merely expensive? Intel, AMD and SanDisk have become, if not cheap, well, certainly more reasonably priced than they were.
晶片类股有望峰回路转
在今夏屡遭分析师打击之后，半导体类股将要绽放光彩。
上月，晶片分析师纷纷下调了一些最大的晶片公司的股票评级，拖累费城证交所半导体分类指数7月份跌幅超过14%，就连收益转好的公司也未能幸免：在英特尔(Intel Corp.)报告第二季度净利润攀升96%的当日，其股价下挫11%，因为人们对其库存和利润率水平感到担忧。
美林(Merrill Lynch)最近将晶片类股评级由增持下调至减持，瑞银(UBS)上周也将该类股评级由中性下调至减持。摩根士丹利(Morgan Stanley)预计，英特尔第三季度收入将逊于预期。德意志银行(Deutsche Bank)将英特尔评级由买进下调至持有，雷曼兄弟(Lehman)削减了对该公司的收益预期，美林将其评级由买进下调至中性。
然而，行业组织都在津津乐道于今年晶片销售的可观增长，而且对资本支出和经济增长的前景依然十分乐观。半导体产业协会(Semiconductor Industry Association)的数据显示，今年第二季度全球半导体销售额较上季度增长9.5%，至534.5亿美元，6月份的销售额更是较上年同期猛增40%。因此，仍有一些华尔街人士相信，晶片公司今年将以良好业绩收尾。
管理资产约50亿美元的纽约投资银行Maxim Group的首席市场策略师里托茨(Barry Ritholtz)认为，今年将要终止的税收刺激措施促使企业纷纷赶在大限前增加技术开支，因而晶片公司第四季度有望表现不俗。他表示，即便美国经济增长放缓，也不会遏制晶片销售的旺势，最近的市场表现就反映了这一点。
《华尔街日报》：全球半导体制造设备及材料协会(Semiconductor Equipment and Materials International)预测，今年面向晶片行业的供应商的销售额将激增63%，半导体产业协会则预计，全球晶片销售将增长29%左右。你赞同最近华尔街对晶片行业前景的所有悲观论调吗?
里托茨：借用最近很流行的一个词，这在我听来有点像是“群体迷思”。
我并不赞同人们对年内剩余时间前景的悲观态度，不过我的宏观模型显示，在2005年中至年底之前存在一些实际问题。这并非特指半导体行业，而是指一旦所有的税收和利率刺激措施消失之后，经济的走势如何？随著利率上升、商品价格上扬、税率提高和刺激措施减退，美国的经济复苏又有何保持增长的理由呢？
从更长远来看，我认为半导体行业的发展能够免遭经济可能带来的不利影响。只要对iPods、手提电脑和电话的需求依然强劲，半导体行业就能有出色表现。除非整体经济增长戛然而止，否则半导体行业的发展不会偏离正常轨道。
美国只是全球主要经济体之一，亚洲各国对半导体的需求将持续走强。中国经济正在强劲增长，日本经济也在复苏，新加坡和韩国前景看好。就连发展势头落后于全球其他地区的欧洲也显示出对电子产品的持续需求。我对半导体行业走强的预期是基于欧洲增长乏力的假设。如果该地区的经济反弹，全球半导体销售将会大幅攀升。
即使美国复苏进程疲弱，只要亚洲地区的复苏持续下去，半导体销售就能保持增长。
《华尔街日报》：你认为英特尔的前景（预计第三季度收入增长10%）是否表明晶片和晶片设备乐观能够避免美林所言的厄运吗？市场似乎仍对该行业的利润率和库存感到担心。
里托茨：我想英特尔的一些问题是CPU领域的真正竞争所致。使英特尔面临利润率压力的一个鲜为人知的原因来自高级微设备公司(Advanced Micro Devices)。后者已经成为真正的竞争对手，不再仅仅是一个无足轻重的角色。该公司新的伺服器晶片获得市场好评，而且定价合理，并将用于台式电脑领域。
《华尔街日报》：一些分析师担心，库存过剩可能损害公司的定价能力。你对此怎样看？
里托茨：我预计，晶片公司第四季度订单将会大幅增长，因为各企业会在几年前通过的加速折旧税则到期之前加大科技支出。大的硬件和资本设备买家适合在2004年完成购买计划，而不是等到2005年以后。半导体公司对销售增长的预期有助于解释库存增加的原因：你需要趁热打铁，第四季度的时机将更成熟。
当然，这类“反渠道库存”可能会损害2005年的销售，这符合非预期后果法则。
《华尔街日报》：从历史上看，晶片类股在经济复苏的这一阶段会有何表现？
里托茨：很难将这一周期和以前相提并论。难以置信的股市泡沫造成的重创、911事件、前所未有的经济刺激措施和对伊战争，再加上一直疲软的就业市场，我无法找到当前周期和以前周期的相似之处。
加速折旧税则行将到期，这将成为晶片公司第四季度的驱动力。我预计年底晶片业将出现反弹，而且明年第一或第二季度可能维持这种势头。
《华尔街日报》：该类股的估价怎样？
里托茨：科技股的估值通常过高。问题是，它们的定价是高得荒唐呢，还是仅仅是有些昂贵？英特尔、高级微设备和SanDisk的股价无疑比以前更为合理了。
