Wed, Dec 07, 2005 page11

• TSMC is Merril Lynch's top pick for custom chips

  GRADUAL RECOVERY The research team also revealed that Intel is its favorite US computer chip stock and Hynix its most preferred memory chip stock

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  Merrill Lynch & Co, ranked second in global semiconductor research, recommended Taiwan Semiconductor Manufacturing Co (台積電), Hynix Semiconductor Inc and Intel Corp among its favorite chip stocks.

  Intel is Merrill's favorite US computer chip stock amid rising demand for notebook computers, Joseph Osha, head of US chip research, said during a presentation to reporters in Seoul yesterday.

  Icheon, South Korea-based Hynix is Merrill's most preferred memory chip stock and Taiwan Semiconductor Manufacturing Co (台積電) is the top pick for custom-made semiconductors, analysts Simon Woo and Daniel Heyler said.

  Merrill's semiconductor research team, second behind Credit Suisse First Boston by Institutional Investor magazine last year, recommends investors focus on specific companies that are outperforming the US$227 billion industry. Shares of the world's top 20 chipmakers have gained 24 percent this year, outpacing the 6.9 percent gain by Morgan Stanley Capital International Inc's World Index during the period.

  "We've been pretty much stock-picking in this environment," said Heyler, head of Pacific Rim chip research. "You're not going to hear Merrill Lynch go out and say this is a big cycle turn up or down, we do think it's a gradual recovery."

  Hoya is Merrill's top chip-related stock pick in Japan because of demand for components used in hard-disk drives, Hiroshi Yoshihara, head of Japanese Semiconductor Research, said.

  STMicroelectronics NV is the broker's top European chip stock recommendation, Andrew Griffin, global coordinator for semiconductor research out of London, said.

  California-based Novellus Systems Inc is Merrill's top recommendation among semiconductor-equipment stocks, said Thomas Diffely, who covers the industry out of San Francisco.

  Intel, the world's biggest chipmaker, will benefit from rising demand for its Centrino processors used in notebook computers and will probably fend off rival Advanced Micro Devices Inc's attempts to win share in the market segment, said Osha, ranked the No. 2 US chip analyst by Institutional Investor this year.

  Prices of processors used to run desktop computers will probably fall as demand stalls, and AMD will probably grab market share for processors used in servers, he said.

  Still, competition between Intel and AMD will intensify next year when the companies are scheduling three new 12-inch microprocessor factories to go online, which may lead to overcapacity, Osha said.

  "I can't remember the last time that's happened," Osha said. "It's kind of like two freight trains running into each other."

  Suwon, Korea-based Samsung Electronics Co, the second-largest chipmaker, will probably continue to narrow the gap with Intel because of rising demand for its NAND flash memory chips that store songs and data in consumer electronics such as Apple's iPod Nanos and Sony Corp's PlayStation Portable game consoles, said Woo, who heads memory chip research. Woo last month raised his projections for global NAND flash sales next year by 25 percent to US$16 billion.

  Samsung is the world's biggest NAND maker, followed by Toshiba Corp and Hynix, according to market researcher ISuppli Corp.

  "When you look at semiconductors overall, NAND has the fastest growth and stocks with exposure to it will continue to outperform next year," Woo said.
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