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Salomon Analyst Who Called Chip Stocks' Peak Now Hinting He's Looking for Bottom


NEW YORK — Jonathan Joseph was correct in July when he told investors to sell semiconductor stocks.

The Salomon Smith Barney analyst now says it might soon be time to buy, according to some of his clients.

Salomon's sales force and Joseph have told money managers in recent days that he's considering changing his recommendation on chip stocks, which include companies such as Intel Corp. and Texas Instruments Inc., by May or June.

"He's looking to make the call, but he's nervous about the timing," said Thomas Angers, money manager at Glenmede Trust Co. in Philadelphia, which manages $18 billion.

Major chip stocks have plunged 58%, on average, since Joseph said on July 5 that declining prices and slower sales suggested the semiconductor business cycle had peaked--a prescient view that established his reputation.

Now, a recovery for chip companies--whose products go into everything from toys to automobiles--could also signal a rebound for technology in general.

In an e-mail Tuesday, Joseph wrote, "I have no plan to upgrade the group at this time." The semiconductor business might not "see its low point" until August, he said.

"In the past 24 years and through five different downturns, the stocks have bottomed about three months after the trough" in the business itself, Joseph wrote. The stocks might rally a month or two before August, though, "if you believe investors will be anticipatory," he said.

Worldwide, chip sales growth slowed for a sixth straight month in February as customers continued to reduce stockpiles of extra chips, an industry trade group said Tuesday.

February chip sales reached $15.5 billion, the Semiconductor Industry Assn. said. That was a 6.9% decline from January's level.

Scott Pape, portfolio manager at CastleArk Management, which has $1.5 billion in assets, heard Joseph Tuesday morning in Chicago. The analyst said "in May or June he would be back on board" if the business stays on track to start recovering this summer, Pape said.

It was not "a statement we've seen the bottom," Pape said, "but we're getting closer."

Joseph is scheduled to meet with money managers in New York this week. Investors said it's not unusual for analysts and salespeople to hint at changes in a firm's recommendations as they seek to provide new information to clients.

Joseph hasn't raised his rating on any of the 23 stocks he covers since July, when he cut his forecast for four companies, including Texas Instruments and Advanced Micro Devices Inc.

His call then was far outside the mainstream: Chip stocks were among 2000's best performers, and the SOX index of major chip stocks was just 12% off its all-time high.

"It was a controversial call, unquestionably, at the time," said John Leo, manager of the Northern Technology Fund, who was meeting with Joseph and other Salomon tech analysts Tuesday.

"It was as much gut feel as hard evidence" that motivated the move, Leo said. "It doesn't matter because it was right."

Joseph, 46, has been at Salomon for two years and last year was a runner-up chip company analyst in Institutional Investor magazine's annual rankings of Wall Street researchers. The money manager poll was completed before Joseph's July recommendation change.

But whether Joseph can call the bottom is an open question. If the economy's recovery is slower than expected, it might be too early for chip stocks, Leo said. "It's going to be as tough to call the bottom as it was to call the top," he said.

If Joseph gets the timing for buying chip stocks right, he'll "have created an image that will last a long time," Leo said.

Angers agrees. "You don't get credit" if you tell investors to sell at the right time but not when to buy, he said.

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