Chip stocks in dumper -- again

Semiconductor and chip-equipment stocks went a roller coaster ride Monday after several institutional brokers downgraded the stocks because of slower sales in the first half of 1998 and weaker demand for PCs worldwide.

But Monday's downgrades didn't have the universal effect one might expect as Xilinx Inc., Applied Materials Inc. and KLA-Tencor Corp. all managed to make slight gains in heavy afternoon trading.

"The Asian economic disarray, especially in Taiwan and Korea, isn't helping the chip segment at all," said Stuart Johnson, an analyst at Schroder Wertheim & Co. "You've got two philosophies pulling the market back and forth. One side sees the weakening demand for PCs as an excuse to sell and the other side says that's exactly the reason to buy select companies. Time will tell who's right."

Intel Corp. shares were up 25 cents per share to $70.75 but this could be a bit deceiving. A Wall Street Journal report indicates that Intel may be in talks with Microsoft Corp. and Tele-Communications Inc. to supply set-top boxes for interactive television.

"That's cushioning the blow for them," Johnson said. "If there was no other news, I'm sure Intel would be down at least $2 a share. But, today's trading is a good example of how important it is for everyone, including Intel, to be diversified."

The news wasn't as good for Cypress Semiconductor Corp., which was off $1 per share, or 11 percent, in early-afternoon trading after issuing profit warnings for its fourth quarter. First Call consensus expected the chip maker to post a profit of a out 9 cents per share, but slackened demand in Asian and production snafus will lower that figure to about 1 cent per share.

Cypress stock has fallen 47 percent, and its earnings per share have slumped 45 percent for the most-recent 12-month period.

Hambrecht & Quist on Monday cut earnings estimates after noticing Asian motherboard and peripheral manufacturers are cutting production rates and order patterns due to uncertain economies. It also expects the high density programmable logic market to see growth of 15 percent to 20 percent in 1998 versus 20 percent to 25 percent growth in 1997.

Texas Instruments Inc., which was off 13 cents per share to $40.75, Intel Corp. and Xilinx Inc. all had their earnings estimates lowered by Hambrecht & Quist.

Daniel Mandresh, an analyst at Merrill Lynch, said investors are looking for any excuse to sell semiconductor stocks. The recent volatility in Asia and reports of sagging demand for PCs from major market research firms is more than enough evidence for skittish investors.

"These stocks are always the first to get when times get a bit rough," Mandresh said. "They are the most cyclical stocks and companies so people get scared. When things turn around in the middle part of the 1998, you'll see the same kind of growth in chip stocks that we've seen in PCs and networking this year."

Gruntal & Co. on Friday cut its earnings estimates on shares of Lattice Semiconductor Corp because of economic turmoil in Asia. The chip maker's only Korean distributor was declared insolvent and its third-quarter earnings estimate was revised from 62 cents per share to 57 cents per share. The stock was down $1.31 per share to $49.69 in afternoon trading.

"The bottom line for smaller companies like Lattice and Cypress is not good," Johnson said. "Unlike an Intel or AMD, they don't have the resources to handle a slow down and gear up for future demand. It's a cruel market."