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Analyst's Forecast Speeds Broadcom Stock Free Fall

Semiconductors: Shares of Irvine company are under $100 for first time since last December. Firm stands by earnings estimate.

November 28, 2000|From Bloomberg News

Broadcom Corp.'s stock was pummeled again Monday after an analyst said he expects shares of the No. 1 maker of chips for cable modems to rise less than he previously forecast.

The stock slumped $19.56 a share, or 17%, to $97.56 in heavy Nasdaq trading, falling below $100 for the first time since last December. More than 19 million shares changed hands, making Broadcom one of the most active stocks in U.S. markets.

In the last three weeks, the Irvine company has seen its shares lose more than half their value, erasing about $29 billion in market value.

Salomon Smith Barney analyst Clark Westmont told clients Monday that he expects Broadcom shares to rise to $200, down from an earlier target of $300.

In a morning research note, he cited "signs of flattening orders in Broadcom's supply chain, inventory concerns in the digital cable sector, and overall valuation compression in the communications (chip) arena."

Robb Parlanti, senior portfolio manager at Turner Investment Partners in Pennsylvania, said the market "has to get comfortable with more of a reasonable valuation" on the shares. His firm sold all its Broadcom shares this month.

Westmont wasn't available for further comment. Broadcom officials declined to comment.

Earlier this month, Broadcom Chief Executive Henry T. Nicholas III said he remained comfortable with analysts' earnings estimates of 31 cents a share for the current quarter.

"Our business in broadband communications and enterprise networking chips continues to be strong, and nothing has occurred to reduce our confidence," Nicholas said in a news release Nov. 9.

Shares of Broadcom and other makers of semiconductors for telecommunications equipment have declined this month on concern that customers such as Cisco Systems Inc. will order fewer chips after accumulating too much inventory.

Investors also said Broadcom's stock was under siege because of AT&T Corp.'s decision last week to halt purchases of cable television gear, saying it had enough to meet needs through this year. That's raising concern that demand for digital cable set-top boxes that use Broadcom chips could slow, said Waddell & Reed Financial Inc. analyst Venu Reddy.

"Previously, people were expecting Broadcom to be in pretty decent shape in the set-top box market. Now, if questions are being raised as to whether 35% of (Broadcom's) revenues are safe, people lose confidence," said Reddy, whose firm owns about 633,000 shares of Broadcom.

Parlanti said he's still upbeat and doesn't "think it's the death knell for the cable industry or Broadcom or anything like that."

"Analysts have been taking down their (price) targets on stocks all over the place," he said. "If somebody's selling just because he (Westmont) lowered his target, they're selling for the wrong reasons."

Westmont also reiterated his "buy" rating on Broadcom shares and said, according to the morning Salomon research note, that "any fundamental problems will be short-lived."

Stocks of two Broadcom rivals also sagged Monday. Shares of PMC-Sierra Inc. fell $10.75, or 9.5%, to $102.69, while Applied Micro Circuits Corp. stock dropped $6.38, or 11%, to $51.13.

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