NEW YORK — The gut-wrenching plunge in the Nasdaq Composite index last week is not expected to take the steam out of the electronics industry's boom year, even though some companies looking for funding from public offerings are already feeling the pinch. Indeed, a number of companies, including Singapore foundry Chartered Semiconductor and Internet portal AltaVista, postponed public stock offerings last week in the wake of the market nose dive.
Wall Street analysts covering semiconductor manufacturers and semiconductor capital equipment stocks said last week that fluctuating technology stocks do not change the fact that solid fundamentals will carry the electronics industry to a record year in 2000.
However, these same analysts suggested that lesser-known companies with no earnings or industry track record, especially Internet startups, could be the ones to suffer.
"The outlook for the global electronics industry over the next two to three years is still good," said Edward C. White Jr., managing director at Lehman Brothers Inc. (New York), who monitors the semiconductor manufacturing and equipment industries. "The high pace of growth, fine earnings and positive momentum position semiconductors and semiconductor capital equipment stocks well for the long term."
Growing demand
White expects demand for hardware for high-bandwidth communications, both wired and wireless, and advanced semiconductors for communications and digital consumer electronics to continue to fuel the growth of device makers and equipment suppliers.
He expects stock prices to continue to be volatile, mostly because prices moved up so sharply in previous months. But "as long as companies continue to meet expectations and earnings forecasts, I believe the stocks can rebound," White said.Other analysts, including Ali Irani, executive director for equity research at CIBC World Markets (New York), echoed those sentiments. "Semiconductor equipment companies are in a very strong cycle with many legs ahead of it," said Irani, who follows semiconductor equipment companies.
Irani, who claims not to be worried about the Nasdaq's recent downward swing, believes companies in the equipment sector continue to be good buys, relative to other technology stocks. Equipment company earnings are good and stocks are trading at 15 to 25 times earnings per share, he noted. Companies enjoy strong fundamentals and reasonable stock valuations, said Irani.
"Companies that have strong fundamentals are doing well compared to other stocks in the market and are outperforming on a relative basis," he said. In fact, Irani believes that what drove the Nasdaq plunge on April 14 is partly a reflection of overflow in the correction of stock prices in other industry segments.
Both Irani and White said investment houses are advising investors to clean up their portfolios, taking advantage of the volatility in the market that has affected even the best names to buy some of those companies and get rid of some of the weaker players.
Nevertheless, the Nasdaq's mood swings prompted some companies to postpone public stock offerings last week. Analysts said the delays could be a sign technology companies may have trouble securing funding through offerings this year.
The Monday following the Nasdaq dive, wafer foundry Chartered Semiconductor Manufacturing Ltd. (Singapore) postponed a global offering of 78 million shares due to current stock market conditions. The company went public last October and trades under the symbol CHRT on the Nasdaq.
IPOs on hold
Meanwhile, Internet portal AltaVista Co. (Palo Alto, Calif.) postponed its initial public offering, which the company originally filed for in December. Alta Vista was to be spun out of CMGI Inc. and was slated to trade under the symbol ALTA.
"When financial markets are as volatile as they are now, the first reaction is to look at companies that need financing, because financing markets are going to be tough," said Irani. "But most of the companies in the semiconductor equipment industry are well-funded and even some of the startups have funding from banks. The companies that will have a tough time will be Internet startups and the like who are counting on IPOs."
Dot-coms can expect to feel the squeeze on capital this year, said KWR International director Jonathan Lemco and company economist Scott B. MacDonald in the KWR International Advisor newsletter. "In the next year or two, we think that there will be a massive shakeout among the 'dot-com' stocks," they wrote. "A majority could fail or be bought out. If six months ago almost all of them had no trouble raising money, today it is most difficult to do for a majority of them. After the expected shakeout, however, the rich [Microsoft, Cisco Systems, Sun Microsystems, Yahoo] will inevitably get richer."
Some economists suggested that what makes the dot-coms more vulnerable to market volatility is their lack of earnings and industry track record paired with inflated stock valuations and the idea that they would be immune from any general economic conditions affecting so-called "old-economy" stocks. The recent plunge offered a reality check.
Paul Christopher, economist at A.G. Edwards in St. Louis, believes rising interest rates and inflation will eventually affect so-called "new-economy" stocks, while technology companies with solid products, revenue and market share are likely to hold up despite the stock market volatility and fears about interest rates and inflation. Christopher said the companies to be concerned about are the so-called "new-economy stocks," a term he dislikes.
"There is a lot of hype about how new-economy stocks are immune from old-economy concerns like inflation and interest rates," Christopher said. "But even though these companies are focused on technology and the Internet, these new-economy companies can only succeed to the extent that they can plug into existing business, and all of their customers will be brick-and-mortar companies. That means they will be impacted by general economic concerns sometime down the road."
