But healthy demand for chips, while positive for the industry overall, doesn’t mean you can just buy the group, says Citigroup’s chip analyst Glen Yeung. In a note yesterday he urged investors to focus on a couple of stocks that are either value stocks or that have turnaround stories. His picks: Intel (NASDAQ:INTC), Integrated Device Technology (NASDAQ:IDTI), Spansion (SPSN), and cell phone chip maker Texas Instruments (NASDAQ:TXN).
Overall, says Yeung, “Whereas inventory was a topic of much debate through the always-volatile earnings season, investor attention is now shifting to issues of end-demand.”
And he sees demand holding firm across a number of markets:
Intel’s not hit as bad as Advanced Micro Devices (NASDAQ:AMD) in the current chip price war: prices of Intel’s microprocessors in the spot market were flat week-over-week last week, while AMD’s prices were down 6%; IDT should benefit as sales of wireless equipment from the likes of Nokia (NYSE:NOK) rebound, following all the mergers in that industry, such as Nokia’s acquisition of the Siemens AG’s (SI) wireless networking business; Rising production of DRAM memory chips is a real concern for companies such as Spansion, but demand for memory from PC makers should continue to be strong, helped by a 67% jump in PC sales following the introduction of Vista in January, says Yeung, indicating the chip industry may be able to survive the build-up in supply. And the cell phone chip market will return to health in March after a lackluster January and February, as inventory of wireless processors gets burned off, says Yeung, boosting results at Texas Instruments.
Yesterday, Intel shares were down a quarter percent at $21.15, Texas Instruments was up about 1% at $31.05, IDTI was up nearly 2% at $16.37, and Spansion stock was up fractionally at $12.98.