For the first time in more than a year, UBS Warburg LLC analyst Byron Walker is recommending that investors buy shares of semiconductor-equipment makers including Applied Materials Inc and Novellus Systems Inc.
Some investors are questioning the timing of Walker's newfound bullishness after a 53 percent surge in the Philadelphia Semiconductor Index the past two months.
"This is probably an analyst who is afraid of not being on the train when it leaves the station," said Bernard Picchi, director of US equity research at Federated Investors Inc, which oversees US$160 billion in Pittsburgh. "Unfortunately, the timing is kind of bad because the stocks have already run up in anticipation" of a rebound in profits, he said.
Walker said he raised ratings on Applied Materials, Novellus and five other chip-equipment makers because demand for semiconductors and gear used to build them will pick up in the first half of next year.
"We are now seeing an order bottom in the month of December, and when you see an order bottom, you make the call," Walker said in an interview. "We told the sales force we wouldn't be chasing the stocks here" and to buy the shares when prices dip.
Walker raised Applied Materials, the largest chip-equipment maker, ASM International NV, Lam Research Corp and Veeco Instruments Inc to "buy" from "hold." He boosted Novellus, Electro Scientific Industries Inc and Varian Semiconductor Equipment Associates Inc to "strong buy" from "hold."
The Philadelphia Semiconductor Index rose 6.5 percent yesterday, its biggest gain since Nov. 1.
Applied Materials advanced US$3.16 to US$42.43, Novellus climbed US$4.24 to US$41.70 and Veeco Instruments jumped US$2.36 to US$35.66.
In Japan, the shares of Tokyo Electron Ltd, the second-largest chip equipment maker after Applied Materials, rose as much as 6.9 percent to ?6,840, and were last at ?6,810. Advantest Corp, the biggest maker of computer memory testers, rose 4.7 percent to ?7,860. They recently traded at ?7,840.
The outlook is still bleak for the industry, analysts said.
Sales of chipmaking equipment will drop a record 38 percent to US$29.6 billion in 2001 from US$47.7 billion a year ago, the best-ever year, Semiconductor Equipment and Materials International said in an e-mailed release Tuesday. The association estimates sales will fall 3 percent to US$28.7 billion next year.
Wall Street analysts have jockeyed this year to call a bottom among chip and chip-equipment makers. Top-ranked Jonathan Joseph of Salomon Smith Barney Inc, who correctly called the group's high in July last year, turned bullish on chipmakers including Intel Corp this April.
Lehman Brothers Inc's Edward White Jr, a runner-up among chip-equipment analysts in Institutional Investor magazine's survey this year of money managers, said in October that an industry recovery may be at least 12 months away. White cut ratings on 14 equipment makers including Applied Materials and Terad?e Inc to "market perform." While investors have jumped into the group after the Standard & Poor's 500 Index and NASDAQ Composite Index hit three-year lows in September, some say the stocks have risen too much.
"It's certainly not clear from any aggregate numbers that we have seen that we are definitely in a bottom," said Matt Considine, manager of the US$1 billion BlackRock Large Cap Growth Equity Portfolio, which counts Novellus among its holdings.
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