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Tech Industry

Chip stocks rally on upbeat report

Investors nudge the market upward as an influential trade group's findings show that the semiconductor industry is healthy and growing--for now.

    Semiconductor stocks nudged slightly upward today, after an influential report indicated continued strong demand for chips.

    The Philadelphia semiconductor index finished the day at 1157.00, up 32.81, or 2.91 percent from yesterday.

    KLA-Tencor was the semiconductor sector's biggest gainer today, closing at $60.31, up 8.4 percent from yesterday. Lattice Semiconductor closed at $70.13, up 7.6 percent. The day?s biggest loser was Rambus, which closed at $89.19, down 4 percent.

    Semiconductor Equipment and Materials International(SEMI), a San Jose, Calif.-based trade group, reported yesterday that the July book-to-bill ratio for chip companies in North America was 1.23. Many analysts were bracing for a slightly more disappointing ratio of about 1.20.

    The latest book-to-bill statistic means semiconductor orders were 23 percent higher than shipments in July. Analysts generally interpreted the number as a sign of a growing market and healthy industry--for now.

    "The industry?s still seeing good, solid growth," said Mark FitzGerald, semiconductor analyst and managing director of Banc of America Securities. "We know the industry has been on a vertical ramp for the last nine months, so it wasn?t a surprise. But we thought the actual ratio would have come in lower."

    SEMI reported July shipments were $2.4 billion, a 73 percent increase from July 1999.

    The book-to-bill ratio for June was 1.27, slightly better than in July. But a slight dip in semiconductor demand usually happens every July.

    Despite the rosy SEMI statistics, analysts said the industry would eventually face a cyclical crash.

    They speculate that the current component crunch will likely exacerbate an inevitable semiconductor downturn: Many big computer companies are ordering two or three times as many products as they need to ensure delivery. So analysts are warning that today?s scorching demand may be a dramatic inflation of the original equipment manufacturers? actual demand.

    But experts fiercely debate when, exactly, the downturn will begin. Some are bracing for a downturn within four months, while others say it could take a year or more.

    "Anybody who tells you that they know when is probably full of it," said Eric Chen, senior analyst for Chase H&Q. "We don?t think the down cycle is going to come in the next six months, but that?s probably as good a visibility as anyone has in this industry."