Friday September 1, 1:28 pm ET by Betsy Schiffman, AP Business Writer Chip Makers Expected to Benefit From Bustling Second Half of Year
NEW YORK (AP) -- Chip makers may be moving into a strong second half of the year, assuming there is a surge in sales of consumer electronics for the holidays. Of course, it doesn't hurt that expectations are already set so low, according to Jefferies & Co. analyst John Lau.
"Our analysis indicates that the market expectations have come down significantly, but the multiples have largely remained unchanged," Lau wrote in a note to clients. "If the macro environment continues to hold up for a seasonally normal holiday season, we believe the semiconductor stocks will have an opportunity to rally through the end of 2006."
Lau predicts chip makers could benefit from improved personal computer sales and an increase in sales of mobile phones. Other analysts see higher profits for Intel, specifically, during the remainder of the year with the end of a heated price war with rival Advanced Micro Devices and possible cost cuts.
Friedman Billings Ramsey analyst Chris Caso predicted chip maker Intel Corp. will nix the plump discounts it implemented during the first half of the year.
The price cuts, which were intended to squash market share gains by smaller rival Advanced Micro Devices Inc., resulted in a 57 percent drop in Intel's second-quarter income.
"Our checks in Asia last week suggest stabilizing unit demand, inventory improvement, and an end to the serial price discounts offered during the first half of the year," Caso wrote in a note to clients.
Still, it may take more than stabilized prices to drive Intel's growth, according to ThinkEquity analyst Eric Ross.
"Aggressive cost cutting will likely drive improved margins," Ross wrote in a note to clients. "We believe Intel will initiate a series of aggressive cost-cutting measures ahead of our initial expectations."
Investors seemed to like what they heard, sending shares of Intel up from $19.06, or 3.5 percent, during the week to around $19.78 by Friday's session on the Nasdaq.
AMD shares rose from an opening price of $24.54 on Monday to just over $25 Friday on the New York Stock Exchange. The Philadelphia Semiconductor Sector Index started the week at 433.89 and by the end of the week rose 3 percent to 446.75.