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Tech shares to rebound: analysts

Asian technology stocks, the region's worst performers in the past year, may rebound as forecasts by companies such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Elpida Memory Inc show an industrywide slump may be ending.

"The earnings have suggested that they will struggle for some time more, but we'll see a recovery toward the end of the year," said Tadayuki Osako, a fund manager at Maintrust KAGmbH in Frankfurt. "That makes now a good time to take the risk."

TSMC, the world's largest producer of made-to-order computer chips, said customers are reducing stockpiles built up after demand for personal computers, mobile phones and consumer electronics slowed. Elpida, Japan's largest memory-chip maker, projected that profit would surge 71 percent this year.

The Morgan Stanley Capital International (MSCI) Asia-Pacific Information Technology Index, a measure of 121 companies in the region, fell 8.8 percent during the past 12 months. The loss was the biggest among 10 industry groups in the MSCI Asia-Pacific Index, a regional benchmark that gained 6.6 percent in the same period.

Last week, the industry index dropped 0.6 percent amid a 0.3 percent advance in the MSCI Asia-Pacific. Two-fifths of the technology companies traded on the Tokyo Stock Exchange's first section reported results.

Technology stocks "are very cheap" when judged by their price-earnings ratios, said Khiem Do, head of Asian equities at Baring Asset Management (Asia) Ltd in Hong Kong.

The group's MSCI index is valued at 17.9 times earnings for the past 12 months, the lowest ratio since October 2001 and just 2.2 percent above the figure for the regional index.

Both the numbers are low by global standards. The MSCI World Information Technology Index is valued at 24.9 times earnings, a 36 percent premium to the MSCI World Index.

Global semiconductor inventories in the third quarter of last year reached a record US$1.6 billion, according to iSuppli Corp, a market researcher. Last week, iSuppli said stockpiles shrank 52 percent in this year's first quarter to US$500 million amid greater-than-expected sales of chips such as microprocessors.

"The semiconductor cycle is going to bottom out and we could be set for a recovery," said Chua Keng Hong, a fund manager at DBS Asset Management Ltd in Singapore.

TSMC gained 4.6 percent last week even though the Hsinchu, Taiwan-based company reported its first quarterly decline in profit in two years. Net income fell 11 percent to NT$16.8 billion (US$535 million), the company said on April 26.

"We expect the digestion of inventory to be near its end," Chief Financial Officer Lora Ho (何麗梅) said. The company expects its factories to run at 80 percent of capacity this quarter, and Ho said the figure may climb as much as 10 percentage points in the third quarter.

Companies such as South Korea's Samsung Electronics Co, the world's largest maker of computer-memory chips, and Nanya Technology Corp (南亞科技), Taiwan's third-largest memory chip producer, predicted earlier in the month that semiconductor prices will rebound in the second half of the year.

Elpida ended last week with a 1.9 percent gain, stemming a 12 percent drop in the prior two weeks. The company on April 25 forecast profit of ?14 billion (US$132 million) for the fiscal year ending next March, up from ?8.21 billion last year.

Some technology-stock analysts have become more optimistic.

Merrill Lynch & Co's Daniel Heyler raised ratings last week on Chartered Semiconductor Manufacturing Ltd (特許半導體), Singapore's largest supplier of made-to-order chips, and on Stats ChipPAC Ltd, the world's third-biggest chip tester.

Chartered has gained 1.6 percent since April 22, when the company reported its biggest loss in seven quarters. During the same period, Stats ChipPAC has added 1.5 percent.

Hideo Ueki, chief investment officer at UBS Global Asset Management in Tokyo, said counting on across-the-board gains in technology stocks may be unwise because the companies tend to be most vulnerable to economic trends.

Ueki said he's favoring makers of liquid crystal displays over chipmakers, and electronic-component producers over their customers, because their parts go into a range of technology products.

"There is a lot of disagreement as to where we are" in terms of spending, said Scott McGlashan, a fund manager at J O Hambro Capital Management Ltd in London.

Even so, many overseas investors anticipate that the weakness in technology stocks won't persist, McGlashan said.

"These stocks will react positively to any good news, and more vigorously than to bad news," he said.
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