Updated from 7:10 a.m. EDT
On Friday, investors celebrated the news that
third quarter has gotten off to a brisk start -- but the broad nature of its sales gains is bound to leave Wall Street wondering whether other chipmakers will see upside too.
Amid news of strengthening PC sales, analysts say they wouldn't be surprised to see a lift in business at companies such as
Advanced Micro Devices
"In general, we believe this is not company specific but rather an example of an upward trend which kept us bullish through the summer," wrote Lehman analyst Dan Niles in a note. "We believe as the third quarter continues to ramp, strength will likely show up in the midquarter calls in many of our other semi names."
Vincent Colicchio, co-manager of the
All-American Equity Fund, says he's most confident on plays related to robust sales of laptop PCs. In the past week,
have reported respective notebook unit growth of 54% and 37%.
Colicchio says he wouldn't be surprised if Texas Instruments and Analog Devices, two of his holdings that have notebook exposure, both saw some upside.
He thinks even Intel itself -- another of his holdings -- could dispense more good news when it issues a midquarter update on Sept. 4. "We're really excited about Intel and Centrino and their chips tied to notebooks. Though valuation may be getting a little rich, it's hard to call just how much earnings will come up in the next couple quarters," he says.
One research shop that sees broad reason for optimism is Soundview, which Monday morning upgraded AMD to outperform and raised its 12-month price targets on it and nine others, including LSI, Texas Instruments,
and Intel itself. (For a longer story on the Soundview upgrade,
click here .)
"We view Intel's preannouncement as more than mere seasonality in the PC market and/or market share gains," Soundview wrote. "Rather, we believe we are entering the first stages of a broad-based semiconductor industry upcycle."
The upbeat report from Intel has even set some analysts wondering whether underdog AMD could be seeing the same. "I wouldn't be surprised if we see some good data, whether AMD preannounces or waits 'til their quarterly announcement," says Quinn Bolton of Fahnestock. "A lot of our data checks in the industry point to the idea that AMD's having a similarly strong quarter." He has a buy rating on AMD and a neutral rating on Intel; his firm hasn't done banking for either.
A buy-side analyst agreed that it's at least possible that AMD could see some gains -- while adding the proviso that strong quarters for Intel don't always translate to strong quarters for AMD. Indeed, in the June quarter, AMD's sales fell 11% short of its initial estimate, while Intel pulled off upside surprises on sales and profits. In fact, some of Intel's strength could have even come from share gains against AMD, noted the buy-sider.
On the call, Intel CFO Andy Bryant refused to speculate on share gains within the quarter.
Aside from AMD -- which, with its spotty track record, tends to be viewed as a speculative play -- the Intel news could benefit another market segment famed for speculative excesses: makers of DRAM (dynamic random access memory), the memory that goes into computers.
Intel guidance suggests an extra 2 million to 2.5 million processors will be sold above original estimates, points out Fahnestock's Bolton. "That's probably 5% higher than the number we had initially expected. If you look at the DRAM sector and it's out of balance a couple percent, you typically see a strong move one way or the other in spot pricing -- so if demand is 5% higher, you've got to imagine that's positive for DRAM." That in turn could boost a stock like Micron, which Bolton rates a buy. Fahnestock hasn't done banking for Micron.
At present, analysts expect the DRAM market to show revenue growth over last year's levels, but it's worth noting they're
divided over the strength of the recovery underway. The trend towards strengthening DRAM prices has reversed in the past couple of weeks, with prices recently tapering off somewhat.
Intel May Stand Alone
All that said, one buy-side analyst adds a caveat against reading too much into Intel's upward guidance: Last year the microprocessor giant posted strong orders for the first and second quarter, only to see business unexpectedly tail off later in the year. "Higher orders and revenues for Intel doesn't necessarily mean demand has picked up. It's usually a decent indicator, but if it doesn't pick up and contributes to an inventory buildup, then we could see a replay of it next year," he points out.
His modest takeaway: the Intel news "lends itself to saying the PC business is doing at least OK. They're not falling apart at the seams, that's for sure."
For that matter, investors seem to be jumping into chip stocks for their trading potential rather than as long-term investments, anyway, some market watchers argue. "Right now, people want to get into the SOX
Philadelphia Stock Exchange Semiconductor Index, because for the last two years the stocks have run from October or September to the end of the year. Investors want to be in early," says Woody Calleri, an analyst at FTN Midwest Research, which doesn't do banking.
He doesn't have any buy ratings on chip shares because, he says, valuations have run up so much. And Calleri views elite chipmaker Intel as an exception to what will be the rule for most semi manufacturers. Though the coming weeks may see some positive news trickling out of other companies, he adds, "I think it's very rare that a company can do what Intel just did."