Intel's Ripple Effects
By Richard Tortoriello
On Jan. 15, Standard & Poor's kept its negative investment outlook on the semiconductor-equipment industry after chipmaker Intel (INTC ) lowered its 2003 capital spending budget. Semiconductor-equipment stocks were the biggest losing industry in the S&P 500-stock index -- falling about 5.2% for the day on the news.
Intel said it now sees its captial spending for 2003 coming in at $3.5 billion to $3.9 billion, vs. $4.7 billion in 2002 and well below our expectation of a 5% to 10% decline. We at S&P believe that Intel accounted for a little less than 20% of all wafer-process spending in 2002.
We expect higher spending by DRAM memory chip makers and Japanese chip companies in 2003. However, given the weight of Intel's budget relative to the industry, we now forecast only 5% to 10% overall spending growth, vs. our earlier estimate of 10% to 15% growth. S&P notes that this anemic rate follows declines in wafer-process equipment sales (for tools used in fabrication plants) of 39% in 2001 and an estimated 36% in 2002.
With valuations high relative to previous cycle troughs, we recommend that investors sell shares of Applied Materials (AMAT ), and avoid Novellus (NVLS ) and KLA-Tencor (KLAC ).
Analyst Tortoriello follows semiconductor equipment stocks for Standard & Poor's
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