Terrible week for tech stocks
Technology stocks took a beating last week as analysts downgraded the outlook for the sector, citing excess supply and inadequate demand.
Last week, Merrill Lynch advised investors to sell semiconductor shares. It said that orders may slow, and cut its recommendation for the chip industry to "underweight" from "overweight".
"We think semiconductor equities offer no upside from current levels," the brokerage said in a note to clients. "Stock prices have declined, but we believe they have the potential to decline further." The brokerage also cut its recommendation for chip-equipment makers to "neutral" from "overweight".
Last week, Citigroup Smith Barney reduced its recommendation on the shares of three major Asian chip manufacturers to "sell" from "buy". It said that the three -- Taiwan Semiconductor Manufacturing, United Microelectronics and Chartered Semiconductor Manufacturing -- faced the risk of an "inventory correction".
Citigroup analyst Andrew Lu said in the report that semiconductor inventory correction may take place early next year, resulting in a price war among industry players. "We recommend avoiding the sector for the next 12 months; sell on any rebound over mixed news," he said.
Advance indications from Intel may have influenced these recommendations.
Last week, the chip giant reported profits of US$1.76 billion or 27 US cents a share for the second quarter, in line with Wall Street forecasts, and nearly double that of US$896 million or 14 US cents a share from the year-ago period.
However, sales came in a bit lower than Wall Street forecasts. Gross margin was 59.4 percent, below the guidance of 60 to 61 percent that Intel indicated in June. Significantly, inventories rose 15 percent to end the quarter at US$3.2 billion.
In the face of these concerns, as well as the resumption in the rise of oil prices, US stocks fell last week, led by the tech-heavy Nasdaq, which lost 3.3 percent, to 1883.15, its biggest weekly slide since April. The Standard & Poor's 500 Index lost one percent to 1101.39, its fifth straight weekly drop. The Dow Jones Industrial Average fell 0.7 percent to 10,139.78, its fourth consecutive weekly decline. The indices are at their lowest in about two months.
European stocks also fell last week, led by technology stocks. The Dow Jones Stoxx 50 Index lost 1.8 percent. The Stoxx 600 Index shed 1.3 percent, with its technology sub-index falling the most. Both indices slid for the fourth consecutive week.
Nokia, the phone equipment maker, was one of the big losers last week, falling 16 percent. On Thursday, it had predicted a decline in third-quarter profit and sales. STMicroelectronics, Europe's largest chipmaker, slid 5 percent. Infineon Technologies AG, the region's second-biggest chipmaker, fell 4.9 percent. Royal Philips Electronics, the region's No. 3 semiconductor maker, shed 5.7 percent.
It was the same story in Asia, with semiconductor-related stocks leading the falls last week. The Morgan Stanley Capital International Asia-Pacific Index, which tracks more than 900 stocks in the region, slipped 0.3 percent to 90.14 this week, its third weekly decline. The MSCI Asia-Pacific Information Technology Index fell 3.1 percent.
South Korea's Kospi index fell 1.1 percent last week, its sixth weekly drop in seven. Taiwan's Taiex index fell 4.8 percent, the biggest weekly decline since the week ended June 4.
Japan's Nikkei 225 Stock Average managed a 0.1 percent gain with the help of a merger between Mitsubishi Tokyo Financial Group, the nation's largest bank by market value, and UFJ Holdings, the fourth biggest by assets. However, Tokyo Electron, the world's second-largest maker of semiconductor production equipment, fell 4.6 percent, its biggest weekly loss in a month.
Predictably after the Citigroup Smith Barney report, Chartered Semiconductor Manufacturing, Taiwan Semiconductor Manufacturing and United Microelectronics all fell, by 9.5 percent, 7.6 percent and 4 percent respectively.
It was not all gloom in technology, though.
According to market research firms Gartner Inc. and IDC, worldwide shipments of personal computers rose strongly in the second quarter. Adding to their optimism, Dell, the world's largest personal computer maker, raised its fiscal second-quarter earnings guidance by 2 US cents a share -- to 31 cents -- on Friday, citing strong growth in business outside the US.
Philips Electronics beat analysts' expectations on Tuesday with net income in the second quarter surging to E616 million, or US$758 million, compared with just E42 million a year earlier. Sales were up 11 percent to E7.28 billion.
Samsung Electronics, the world's No. 2 semiconductor maker, lost only 0.2 percent last week. On Friday, the company reported that second-quarter earnings more than tripled and that it would pay an interim dividend that is 10 times more than a year ago.
Nevertheless, investors have been warned. The easy comparisons in earnings and sales may be coming to an end, especially in technology.
Last week, Merrill Lynch advised investors to sell semiconductor shares. It said that orders may slow, and cut its recommendation for the chip industry to "underweight" from "overweight".
"We think semiconductor equities offer no upside from current levels," the brokerage said in a note to clients. "Stock prices have declined, but we believe they have the potential to decline further." The brokerage also cut its recommendation for chip-equipment makers to "neutral" from "overweight".
Last week, Citigroup Smith Barney reduced its recommendation on the shares of three major Asian chip manufacturers to "sell" from "buy". It said that the three -- Taiwan Semiconductor Manufacturing, United Microelectronics and Chartered Semiconductor Manufacturing -- faced the risk of an "inventory correction".
Citigroup analyst Andrew Lu said in the report that semiconductor inventory correction may take place early next year, resulting in a price war among industry players. "We recommend avoiding the sector for the next 12 months; sell on any rebound over mixed news," he said.
Advance indications from Intel may have influenced these recommendations.
Last week, the chip giant reported profits of US$1.76 billion or 27 US cents a share for the second quarter, in line with Wall Street forecasts, and nearly double that of US$896 million or 14 US cents a share from the year-ago period.
However, sales came in a bit lower than Wall Street forecasts. Gross margin was 59.4 percent, below the guidance of 60 to 61 percent that Intel indicated in June. Significantly, inventories rose 15 percent to end the quarter at US$3.2 billion.
In the face of these concerns, as well as the resumption in the rise of oil prices, US stocks fell last week, led by the tech-heavy Nasdaq, which lost 3.3 percent, to 1883.15, its biggest weekly slide since April. The Standard & Poor's 500 Index lost one percent to 1101.39, its fifth straight weekly drop. The Dow Jones Industrial Average fell 0.7 percent to 10,139.78, its fourth consecutive weekly decline. The indices are at their lowest in about two months.
European stocks also fell last week, led by technology stocks. The Dow Jones Stoxx 50 Index lost 1.8 percent. The Stoxx 600 Index shed 1.3 percent, with its technology sub-index falling the most. Both indices slid for the fourth consecutive week.
Nokia, the phone equipment maker, was one of the big losers last week, falling 16 percent. On Thursday, it had predicted a decline in third-quarter profit and sales. STMicroelectronics, Europe's largest chipmaker, slid 5 percent. Infineon Technologies AG, the region's second-biggest chipmaker, fell 4.9 percent. Royal Philips Electronics, the region's No. 3 semiconductor maker, shed 5.7 percent.
It was the same story in Asia, with semiconductor-related stocks leading the falls last week. The Morgan Stanley Capital International Asia-Pacific Index, which tracks more than 900 stocks in the region, slipped 0.3 percent to 90.14 this week, its third weekly decline. The MSCI Asia-Pacific Information Technology Index fell 3.1 percent.
South Korea's Kospi index fell 1.1 percent last week, its sixth weekly drop in seven. Taiwan's Taiex index fell 4.8 percent, the biggest weekly decline since the week ended June 4.
Japan's Nikkei 225 Stock Average managed a 0.1 percent gain with the help of a merger between Mitsubishi Tokyo Financial Group, the nation's largest bank by market value, and UFJ Holdings, the fourth biggest by assets. However, Tokyo Electron, the world's second-largest maker of semiconductor production equipment, fell 4.6 percent, its biggest weekly loss in a month.
Predictably after the Citigroup Smith Barney report, Chartered Semiconductor Manufacturing, Taiwan Semiconductor Manufacturing and United Microelectronics all fell, by 9.5 percent, 7.6 percent and 4 percent respectively.
It was not all gloom in technology, though.
According to market research firms Gartner Inc. and IDC, worldwide shipments of personal computers rose strongly in the second quarter. Adding to their optimism, Dell, the world's largest personal computer maker, raised its fiscal second-quarter earnings guidance by 2 US cents a share -- to 31 cents -- on Friday, citing strong growth in business outside the US.
Philips Electronics beat analysts' expectations on Tuesday with net income in the second quarter surging to E616 million, or US$758 million, compared with just E42 million a year earlier. Sales were up 11 percent to E7.28 billion.
Samsung Electronics, the world's No. 2 semiconductor maker, lost only 0.2 percent last week. On Friday, the company reported that second-quarter earnings more than tripled and that it would pay an interim dividend that is 10 times more than a year ago.
Nevertheless, investors have been warned. The easy comparisons in earnings and sales may be coming to an end, especially in technology.
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