Shares of computer chipmakers led the way back down Wednesday in the wake of a wider-than-expected loss reported by
. Analysts said it could be a while before the shares come back.
Micron Technology, which makes PC memory chips, lost $575.5 million, or 96 cents a share, in its fourth quarter, compared with a profit of $726 million, or $1.28 a share, in the year-ago period. Sales plunged 79% to $480.3 million from $2.31 billion.
Adding to the grim tone,
Advanced Micro Devices
said yesterday that it will close two wafer fabrication plants in Texas and eliminate 2,300 jobs, or 15% of its workforce. About 1,000 positions are associated with closing the facilities, which are some of AMD's oldest.
said it will stop using AMD's products, in favor of
"This situation is really unique to AMD," said Han Mosesmann, a semiconductor analyst at Prudential Securities. "But it raises concerns that other PC companies will not use their product because it is not as fast as Intel."
At the root of Micron's troubles are falling prices for dynamic random access memory chips, or DRAM, and sputtering demand for PCs. Both were threats to semiconductor manufacturers even before Sept. 11, and experts now say a pickup in computer demand is going to be further delayed.
The attacks on the World Trade Center and the Pentagon raise doubts about business investment and consumer spending, and have led some economists to conclude a recession is now unavoidable. That's bad news for semiconductor stocks, which are cyclical in nature and tend to do well when the economy is doing well. The Philadelphia Stock Exchange Semiconductor Index is off 25.5% since Sept. 11.
"Pricing and earnings will remain gruesome with weak PC demand near term," said Ragsdale, a semiconductor analyst at Goldman Sachs, in aresearch note today. "We would buy
Micron with a time horizon longer than six months." He believes demand for personal computers will continueto slide until at least the second quarter of 2002.
Ragsdale widened his first-quarter earnings estimate for Micron today to a loss of 40 cents a share from a loss of 26 cents. He also cut his 2002 earnings estimate for Intel to 42 cents a share from 60 cents. Micron closed down $3.99, or 19%, to $17.25, while Intel was off 78 cents, or 3.6%, to $20.90.
Prices for Micron's memory products fell about 85% compared with the fourth quarter of last year. "We believe the pricing panic is not sustainable for long," said Ragsdale. "This
DRAM slowdown is unprecedented."
Working in Micron's favor is the fact that it is a low-cost producer, analysts say. That could make it easier for the company to squeeze out competitors. Separately, the memory chipmakers are expected to benefit from upgrades to Windows XP.
But the skeptics remain: "Windows XP could motivate people to add more memory to their computers, giving a temporary lift to the industry," said Drew Peck, a semiconductor analyst at SG Cowen. "But the long-term outlook is dependent on PC demand. And there, I don't see a light at the end of the tunnel."
He says the chipmakers are still pricey. "Relative to historical trough periods, semiconductor stocks, on average, have higher valuations than in previous downturns," he said. "They reflect optimism for a rapid recovery. The fact that things aren't getting any worse doesn't make them a good buying opportunity."