|Winners in the Game of Life|
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Prudential Securities analyst Hans Mosesmann upgraded seven semiconductor companies this morning after Intel ( INTC) preached about stability in the PC business -- a good thing for the company's line of Pentium chips.
Last night, the world's largest chipmaker told investors again that PC demand had normalized, was entering a seasonal cycle and that the second half of the year will be stronger than the first. However, the company also said second-quarter revenue will come in just below the midpoint of its projected range, providing yet another example of a giant with a shrinking top line. The news wasn't devastating. In fact, it was somewhat expected by Wall Streeters who have already heard a preannouncement from Altera ( ALTR) and dour comments from Merrill Lynch's Joe Osha, who assumed Intel would lower guidance. And even though Intel doesn't give forward guidance about its earnings, Mosesmann took the fact that the company didn't lower its revenue targets as a green light for investors. The Prudential analyst upgraded Altera, Atmel ( ATML), Lattice Semiconductor ( LSCC) (which warned last night), LSI Logic ( LSI), Microchip Technology ( MCHP), Pericom Semiconductor ( PSEM) and STMicroelectronics ( STM) to buy from hold, using Intel's notion that PC demand has reached stability as a main reason why these companies should be bought now. Mosesmann, as he did on April 18 when Intel said PC demand was entering a seasonal cycle, took the opportunity to tell investors to focus on the possibility of a recovery. "Our bet is on a cyclical recovery," he wrote in a research note this morning. "We do believe that investments in solid semiconductor companies will provide 35% to over 50% returns over the next 12-to-24 months." With that upside in mind, he not only raised his ratings on the seven companies, but he changed his price targets as well. Altera's 52-week price target was pushed to $41 from $28, while Atmel's was moved to $19 from $14. Lattice moved to $32 from $22, Microchip went to $38 from $27 and STMicroelectronics went to $58 from $40. In the smallest move, Pericom went to $20 from $16, while in the biggest move, LSI went to $44 all the way from $18. In the past week of trading, all seven companies have gained ground. Altera gained 21% in the past week, despite warning of a second-quarter downturn on May 31. Just LSI Logic, with a 24.3% gain, performed better, while STMicroelectronics and Pericom were the only names with gains of under 10%, climbing 8.9% and 7.2%, respectively. Those two companies are also the only ones without year-to-date gains.
Today's upgrade intensifies and highlights the debate over semiconductor stocks and Intel's assertion that the PC demand's weakness is no longer due to an industry wide recession, but because of seasonality. One camp, led by Goldman Sachs' Jonathan Joseph, argues that the bottom is at hand. Another, led by Merrill's Osha,
counters that fundamentals haven't improved and there's no real security in blindly saying things are bottoming now. The debate has raged since mid-April, when Joseph and Osha issued dueling calls a week apart. Since then, goodwill has spread to semiconductor equipment makers who provide the gear to make the chips, with Morgan Stanley Dean Witter upping six names and Mosesmann's colleague, Shekhar Pramanick, raising three. Communications integrated circuit makers have taken the body blows, with Goldman Sachs downgrading three companies and Morgan Stanley taking down seven names. But in the world of companies that make microprocessors that end up in home computers, there is no agreement, only bearish notes from Osha and positive notes from Mosesmann.