A top semiconductor analyst who was the first to forecast a slowdown in the global chip industry earlier this year says that chip stocks remain expensive, despite declines of 50 percent or more for some companies.
"We think it's too early to go in and bottom fish, despite the fact stocks are down quite a bit," said Jonathan Joseph, managing director of Salomon Smith Barney. "The fundamentals have not bottomed."
Joseph said that prices for semiconductor stocks would "have to come down more" and it would take "at least six months" before shares would begin to look attractive again.
Taiwan Semiconductor Manufacturing Co (
United Microelectronics Corp (
Joseph blamed the recent excessive valuations for chip companies on the dotcom bubble, which burst last April.
Last week, Salomon Smith Barney cut its rating from "strong buy" to "outperform" for both TSMC and UMC.
The investment firm believes in a worst-case scenario, semiconductor stocks in Taiwan could drop an additional 30 percent.
Although the views of one particular analyst might not normally move investment markets, Joseph is credited with correctly forecasting the current chip slowdown in July.
He was the first analyst worldwide to turn bearish on the chip market, and his call triggered a US$97 billion sell-off in US semiconductor stocks.
At the time, many chip analysts refused to believe that the cyclical chip industry was heading into a downturn, thinking personal computers and mobile phones would support semiconductor sales.
After Joseph issued his report, company executives and other analysts called it "unfounded" and said it was "too early to tell" where the market was going.
In the months since his July report, the equities market has proven Joseph correct. Some semiconductor shares have crashed between 50 percent and 55 percent since he made the call.
According to Joseph, the decline may not be not over yet, as "valuations are still very high."
Still, the global chip industry is expected to register growth next year, albeit at a slower pace.
Joseph said the worldwide semiconductor industry should expand by 15 percent to 20 percent next year.
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