STOCK IDEAS
The quickest way to quiet a room of boisterous stock investors is to mention a bullish position on chip stocks. But despite the prevailing malaise, not all IC companies are a bad bet. With the rise of digital television, digital cable set-tops, DBS systems, and DVDs, many experts predict that the firms providing chips to encode and decode the digital signals will soon be riding high. The analysts at Dataquest foresee a 179 percent growth in the world market for DVD players and a 150 percent increase in US digital-television sales over the next year - which makes sense since DTV is a nascent market.
Obviously, the chipmakers agree with this rosy forecast. "In five years," proclaims C-Cube Microsystems CEO and president Alexandre Balkanski, "analog video will be dead." Of course, C-Cube is one of the primary DVD and digital set-top circuit makers. But Robertson Stephens analyst Elias Moosa agrees, predicting that next year C-Cube's revenue will grow by 24 percent to US$445 million, with the company's closest competitor, STMicroelectronics, enjoying a 15 percent increase in sales. Warburg Dillon Read analysts expect C-Cube to earn $1.34 a share next year, while ST should reap $3.70 a share.
Why then did C-Cube's stock plummet from $71 in 1996 to $18 at the end of this summer, and ST's stock slip from $72 to $62? "Investors tend to bunch all chip companies into one large market," says Moosa. When such high-profile news as the Asian financial crisis and the dropping price of DRAM hits, the stocks of all chip companies go down.
"If you are looking at the next six months, this isn't the buy," advises Warburg associate David Bujnowski. "But it looks good for the long term."
C-Cube: www.c-cube.com/; STMicroelectronics: www.st.com/.
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