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 (INTC), Integrated Device Technology (IDTI), Spansion (SPSN), and cell phone chip maker Texas Instruments (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 (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 (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.