SAN FRANCISCO -- Wednesday's strong tech-sector performance on the backs of semiconductor equipment makers has given way to weakness in the sector early today. Internet stocks have been mostly lower early, with losses in America Online (AOL) contributing to selling in the sector.
analyst Henry Blodget released a research note on AOL this morning, and while he voiced some concerns about the company, he maintained his earnings estimate for the June quarter, even though he said he sees no major catalysts for AOL's stock until the fall.
Blodget said there has been some speculation that AOL's subscriber growth in the quarter will be slower than expected, and based on talks he has had with management, he expects growth to be at the low end of the guidance range, which was 750,000 to 850,000 subscribers. He said that such a performance "will likely disappoint some investors," but pointed out that when AOL missed its subscriber target in the same quarter last year, the stock was not hurt.
Blodget said that international subscriber growth is "significantly weaker than expected, perhaps partially as a result of the 'free access' movement in the U.K.," though stronger-than-expected growth in the U.S. is offsetting some of the international weakness.
For AOL's current fiscal fourth quarter, Blodget maintained his earnings estimate of 10 cents a share, compared to the
earnings estimate of 11 cents. Shares of the company were down 4 1/8, or 4%, at 106 7/8 in early trading. Merrill has done underwriting for AOL.
News on Wednesday that
would begin making chips from larger silicon wafers helped lift semiconductor equipment manufacturers, and that boost has continued through today.
was up 1/8 at 64 7/8 in early trading after gaining 3 on Wednesday.
, which soared 5 on Wednesday, was up 3 3/8, or 10%, at 37 early today. Intel was up 7/16, or 1%, at 53 9/16.
Internet venture capital firm
was weaker ahead of its earnings report after the close today. CMGI is expected to post a loss of 13 cents for its fiscal third quarter, according to First Call. It was down 4 1/8, or 4%, at 101 1/8, reflecting weakness in the Internet sector.
Also on earnings watch is
. It is expected to report a loss of 24 cents a share for its fourth quarter, according to First Call. It was up 1/4, or 1%, at 20 15/16 early on.
Mixed Signals on Rambus
There's been good news and bad news lately on
, one of the most talked-about stocks in the chip sector. You'd think a panel discussion on Rambus Wednesday at the
Warburg Dillon Read Global Electronics Conference
in San Francisco would settle the issue in favor of the memory-device maker. After all, Warburg is one of the few investment banks on the Street with a strong buy rating on Rambus that did not underwrite the company's IPO. Even underwriter
Hambrecht & Quist
downgraded the stock to market perform from buy in April.
But the panel, which included Rambus CEO Geoff Tate, representatives from memory makers
and Rambus test-equipment makers
, was anything but encouraging.
This is crunch time for the Rambus because Intel is currently sampling its chipsets that will support Rambus-based DRAM chips, and investors have been eager for word on whether the revolutionary memory-enhancement technology will work. Intel has been mum and Rambus executives say they can't give any updates without word first coming from Intel.
Hyundai spokesman Farhad Tabrizi said that PC-133, seen as an interim alternative to the more expensive Rambus designs, will become prevalent in less expensive computers. "It will be the device of choice at the low end sub-$1,000 PC," he said. At the same time, those lower-cost PCs will make up an increasingly larger part of the market, he added. "In a $1,500 PC, Rambus at $200 is not so bad -- it's only 12% of the cost -- but definitely you cannot use it in a $299 PC. "If you want performance, you have to pay for it. There is no free lunch."
The memory makers said that the costs of making Rambus chips won't come down until they can produce and sell in large volumes. But that won't happen, they said, until demand increases. At the same time, they admitted that demand won't increase until costs come down.
On Monday, Rambus got a lift when Micron announced it had shipped Rambus DRAM chips, which was seen as good news that the technology was on track. But on the panel, Micron spokesman Jeff Mailloux said that his company forsees a future with multiple DRAM designs, none of which will become dominant. That would disappoint many Rambus investors, who have been counting on Rambus to take more than 50% of the memory market by 2001, as predicted last year by research group
."We don't believe this one-DRAM-fits-all
approach is the future," Mailloux said. "We have the resources to support many different architectures."
Rambus was up 15/16, or 1%, at 85 9/16 in early trading, though that already was off its session highs of 88.