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.
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."