Leading investment house Credit Suisse First Boston has downgraded a wide range of companies that manufacture semiconductor chips and chip-making equipment, adding fuel to an already inflamed debate about how long the current industry downturn will last.
Credit Suisse also said it now expects personal computer shipments to decline this year, revising downward its previous forecast that shipments would be flat. CSFB cut its forecast for 2002 shipment growth to 10 per cent from 17 per cent.
"The current downturn is more unlike than like any preceding downturn," the brokerage said in a note to clients. "Current conditions are a function of both oversupply and under-demand."
CSFB cut seven technology stocks to "hold" from "buy," including Applied Materials, the dominant player, and also KLA-Tencor, ASM Lithography, Novellus, Varian Semiconductor and ATMI.
"We are not at a bottom for SCE (semiconductor capital equipment) fundamentals, and most likely we are not within 20 per cent of a bottom," the brokerage said.
Such "fundamentals" are the basic measures investors use to gauge the financial health of the industry, a notoriously boom-to-bust-to-boom sector. A rebound in chip equipment fortunes has often provided an early signal to investors that a new technology growth cycle is in store, as electronics makers must buy highly sophisticated chip-making equipment in order to build new types of devices.
The brokerage also slashed its ratings on a range of makers of chips used in communications and diversified electronics applications.
It cut to "hold" from "buy" its ratings on Altera, Applied Micro Circuit, Cypress Semiconductor, Atmel, ChipPAC, Lattice, LSI and Franco-Italian chipmaker STMicroelectronics.
CSFB said the "typical" metrics used to measure the ebb and flow of the industry do not provide enough evidence to gauge when a rebound will occur or how deep and sustained it will be.
Specifically, the brokerage argued that measures such as excess chip inventory, factory capacity utilization, the ratio of bookings to billings, and order rates are not sufficient to predict when a rebound in fundamentals will materialize.
"We are lowering our PC unit shipments estimates for 2001 and 2002," CSFB computer analyst Mr Kevin McCarthy said.
He predicted that shipments of PC units during the third quarter would be flat with the second quarter. He said that while the fourth quarter should show a rebound from third-quarter softness, "we believe it prudent to use a more modest growth assumption given (current demand)."
Mr McCarthy advised clients to hold back from investing new money in PC stocks. "In this climate, investors are wise to wait on the sidelines until there is evidence of an actual demand turn," he said.