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MARKET SAVVY | SAVVY CONFIDENTIAL: A Briefing for Investors

Chip Stocks Rally as World Demand Grows

July 29, 1999|Times Staff and Wire Reports

Computer chip stocks are once again Wall Street darlings, as investors respond to signs of rising demand for chips worldwide.

Many of the stocks are at or near record highs, and traders say "momentum" investors--those who simply chase what's hot--are piling into the shares.

Fundamentally, however, there's also plenty of appeal in the sector:

* Intel, up $2.75 to $70.31 Wednesday and nearing its record high of $71.81 set in late January, is getting a boost from rising optimism about personal computer sales.

"The slowdown in PC growth that we'd been expecting for the last 18 months hasn't occurred," said Alan Loewenstein, co-manager of the $750-million John Hancock Global Technology Fund.

* Micron Technology, up $3.88 to $61.75, said prices are rising for the memory chips it makes. A Micron executive told an analysts' meeting Wednesday that prices for 64-megabit chips have climbed to a high of $4.75 now and could reach $5.25 by next week.

"You will hear us talk more about shortages here and there," the executive said.

* Broadcom, up $11.38 to $128, got a lift from a bullish analyst report and the announcement of a new plant in Singapore.

The Irvine-based maker of semiconductors for high-speed communications was boosted by brokerage BancBoston Robertson Stephens.

"Broadcom has the dominant-market position in each of its three main business segments: cable, networking and set-top box," senior communications analyst Arun Veerappan wrote.

He forecast per-share earnings would hit 77 cents this year, or about $30 million, and $1.10, or about $43 million, next year.

Also Wednesday, Broadcom said it opened a new manufacturing and design facility in Singapore, saying the site might manage up to 60% of its worldwide revenue in the next few years.

With the chip stocks' gains, their price-to-earnings ratios are surging as well. Intel is the cheapest stock in the bunch, at about 31 times estimated 1999 earnings per share.

For some of the stocks, earnings are still a dream.

Micron, for example, is still expected to post a loss this year because of low memory-chip prices earlier in the year.

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Hot for Silicon

How some major computer-chip stocks have fared over the last year, along with Wednesday's performance and the stocks' price-to-earnings (P/E) ratios based on analysts' consensus estimates of 1999 earnings per share.

*--*

52-week Wednesday Wednesday Est. Stock (ticker) high-low close change '99 P/E Advanced Micro (AMD) $33.00-$12.75 $16.81 +$0.25 NA Broadcom (BRCM) 149.50-23.50 128.00 +11.38 175 Intel (INTC) 71.81-34.88 70.31 +2.75 31 LSI Logic (LSI) 53.63-10.50 52.19 +0.69 53 Micron Tech (MU) 80.56-20.56 61.75 +3.88 NA National Semi (NSM) 29.19-7.44 26.50 -0.19 45 QLogic (QLGC) 158.00-23.50 153.56 +4.88 69 Texas Instrum. (TXN) 155.38-45.38 148.56 +5.56 47 Vitesse Semi (VTSS) 73.88-17.13 62.06 -0.06 69 Xilinx (XLNX) 65.13-14.88 62.56 +1.50 49

*--*

NA - not applicable (loss is forecast for the year)

Source: Bloomberg News; Zacks Investment Research (earnings estimates)

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