U.S. semiconductor stock prices should outperform
the S&P 500 index in 1998 because of strong demand from personal
computer manufacturers, increased sales to communications applications, and
a firming of memory chip prices, according to Jonathan Joseph, a senior
research analyst at NationsBanc Montgomery Securities.
During an annual investment conference in San Francisco, analysts from the
securities firm presented forecasts on a number of semiconductor sectors.
Joseph said he based his stock price prediction on the correlation between
expected strong demand for chips and an expected reduction in
semiconductor capital spending in 1998.
Historically, he noted, semiconductor stock prices rise when capital
spending falls but demand for chips rise. In 1998, total semiconductor
capital spending is expected to drop 5 percent, while chip demand is expected to
increase by 10 percent, suggesting a good year for semiconductor stocks, the
Joseph predicted "sustained, double-digit growth" of demand for chips used
in personal computers, including microprocessors, digital signal processors
(DSPs), microcontrollers, and microperipherals. Also, he said he expects
increasing demand for semiconductors used in digital wireless telephones
and cellular networks, as communications networking software is
increasingly embedded directly on semiconductors.
DRAM prices should firm as the year progresses, according to Joseph.
When it comes to the Asian financial crisis, Joseph believes semiconductor
stocks have already absorbed the bad news from the region. He said that
concerns about slowing demand from Asia are real, and that the Asian "flu"
could spread to China and Japan.
But on the positive side for global chip makers, Joseph said major Korean
chip-makers, such as Samsung, are now slashing their capital spending due
to their inability to borrow, and as a result, they won't be able to add
capacity that might have put further pressure on commodity chip prices.