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Insiders play their chips well

Semiconductor insiders sent valuable clues about the health of the chip industry earlier this fall, just prior to the group's stellar recovery.

Semiconductor insiders sent valuable clues about the health of the chip industry earlier this fall, just prior to the group's stellar recovery.

According to the Semiconductor Industry Association, worldwide chip sales rose to $10.22 billion in September. Although September sales were lower than a year ago, the steady growth sparked speculation that the year's slump may be abating, as sales of personal computers and networking equipment improved.

Following that news, shares of semiconductor stocks returned to their former glory after the Philadelphia Semiconductor Index bottomed out in early October.

Semiconductor shares fell this year when an oversupply sent prices tumbling. Asia's economic crisis, which left much of the region in recession, also hurt the industry by cutting demand. Despite recent advances, some industry pundits remain skeptical about future demand, and attribute the rising sales trend to a temporary seasonal pickup.

Insiders, however, could sense a shift in sentiment during August and September.

Cree Research chairman and chief executive F. Neal Hunter bought 50,000 shares in August at 14.13. Additionally, Cree director Michael Haley bought 175,000 shares in August at 13.11 to 15.06. Cree's stock has moved up more than 160 percent since Hunter and Haley bought in.

Yet the strong performance came as no surprise, as Hunter has previously demonstrated an excellent track record of insider trading decisions. Hunter acquired 15,000 shares in November 1996, at 10.13 to 10.25. Shares of Cree subsequently began a steady climb, that finally topped out around 30 in late 1997. He also sold 7,000 shares in February 1998 at 16.81, and 10,000 shares in September 1997 at 18.69.

These were the first purchases by any Cree insider since February 1997. The company has beaten analysts' forecasts for six consecutive quarters (most recently surprising to the upside by 4 cents per share in September) and is now trading at an all-time high of 37.43 per share.

At Motorola, four high-level insiders purchased 3,500 shares in October between 41 to 44 per share (while the stock is currently at 60). The buying group happened to include Richard Younts, the executive vice president of Pacific Rim Sales.

The company's regional exposure to Asia has been a big trouble spot for Motorola. However, analysts have speculated that the company's shares should benefit from a stronger yen, making it easier for Pacific Rim companies to loosen already tight capital expenditure budgets.

Micron Technology, the world's second largest maker of computer memory chips, has made steady climb from its October lows. William P. Weber, the former vice chairman of Texas Instruments and a current board member at Micron, purchased 10,000 shares at 33.88 in October (the stock trades at 46). The transaction doubled his common-direct position to 20,000 shares. Insider buys at Micron are a rare sight, and Mr. Weber's transaction represented the largest insider purchase at the company so far this year.

The insider trading picture was not entirely rosy for the industry. Seven Intel insiders sold 1.19 million shares from October 15 to 30 at 82 to 90.50 each. Yet company insiders left a great of money on the table by selling before the stock's move north to 110 per share.

CEO and president Craig Barrett was the most active seller, cashing in 700,000 shares for approximately $54.6 million. In fairness, Mr. Barrett's sales were somewhat mitigated by two important facts. First, certain tranches of his stock option holdings were approaching expiration. Secondly, Intel insiders are required to sell shares in defined "window" periods, making market timing a difficult proposition. However, the size of Intel sales (which now exceed 3.5 million for the year) raise some doubt about the prospects for a longer-term semiconductor recovery.