For Subscribers

Get the complete article now!

Five analysts and top management from eight sector firms examine the Semiconductor sector in this special 57-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info377.htm

TWST: Jonathan, has the semiconductor cycle bottomed? And if not, how far off the bottom are we?

Mr. Joseph: No, it has not bottomed yet but we expect it to bottom in August. Obviously some areas will probably bottom before others. For example, we expect the PC component segment to act a little bit better than the wireline communications segment.

TWST: Barron’s recently cited a prediction by the World Semiconductor Trade Statistics group that the global market for chips will decline 13.5% in 2001 to 176.8 billion. How should investors interpret this?

Mr. Joseph: That’s actually overly optimistic. We think that it’s going to decline about 16% before growing about 10% next year. So we think that the WSTS is actually a little bit optimistic.

TWST: Will this industry always be subject to cyclical swings?

Mr. Joseph: Yes. Cycles are neither positive nor negative. It’s like fire — you get it right and it helps you or you get it wrong and it burns you. This is a highly cyclical business. Over the last 30 years it has shown very clear patterns, though each time the cycle is a little different because it is based on human nature and reaction time. And human nature never really changes, nor do, essentially, the physics of the reaction time. That has to do with how quickly we can respond to perceived demand and the time it takes to get new capacity online. And just as we get that new capacity online, we find out that demand isn’t all that we thought it was. Now we’re sitting around with a glut of capacity, so we cut capital spending. That capacity will be absorbed and demand will reaccelerate a little bit, and then we get into a shortage. So the sector is never in balance. I liken it to driving down the Infobahn with a sloppy steering wheel: you’re always overcorrecting to one side or the other. And to the extent that the semiconductor sector never changes, it’s that change is constant.

TWST: What about the small caps, Jonathan? Are there any among the small caps that could really surprise investors, if not in the second half of 2001, then in 2002?

Mr. Joseph: Among the small caps, we would look at Pixelworks (Nasdaq:PXLW), one of our favorite names. They make controller chips that go into flat panel displays.

TWST: How large is that market?

Mr. Joseph: It’s potentially enormous where flat panel displays will replace CRTs in coming years.

TWST: What’s attractive about Pixelworks as an investment?

Mr. Joseph: Pixelworks has a really superior technology. In addition, they’ve got one of the strongest management teams of any small cap company I’ve ever seen.

TWST: Is this a stock that investors can buy today, or is it one that they should be watching?

Mr. Joseph: Well, it’s not cheap. But certainly, in the $20s, it’s very attractive.

TWST: Is there another in the small cap group that you’d like to highlight?

Mr. Joseph: I’d probably leave it at that.

TWST: Jonathan, just to sum up, what’s a final thought that you would leave with investors who are concerned about whether this is an industry that they should be going into today or whether they should be sitting on the sidelines?

Mr. Joseph: I think the near term will almost certainly be choppy. We’re going into, seasonally, the weakest part of the year. But I think that, without a doubt, we will be bottoming here on a cyclical and long-term basis in August, and I would be a very aggressive buyer at attractive price points for the group.

This special issue includes:

1) Semiconductor - In an in-depth (5,500 words) Analyst Roundtable, Eric Chen, Senior Analyst at JPMorgan H and Q and Joseph A. Osha, top ranked Analyst responsible for covering the semiconductor industry at Merrill Lynch Global Securities, examine the outlook for the sector including, inventory levels, future outlook for smaller companies and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at twenty-three sector firms asked market insiders about the ability of management teams to create shareholder value.

3) Outlook for Semiconductors - In an in-depth (3,000 words) Analyst Interview, Dan Scovel, Semiconductor Analyst with Needham and Company, examines the outlook for the sector and shares specific stock recommendations.

4) Semiconductor Industry Overview - In an in-depth (2,000 words) Analyst Interview, Arun Veerappan, Managing Director at Robertson Stephens, examines the outlook for the sector and shares specific stock recommendations.

5) Semiconductor Stocks - In an in-depth (1,900 words) Analyst Interview, Jonathan Joseph, Managing Director at Salomon Smith Barney, examines the outlook for the sector and shares specific stock recommendations.

6) CEO interviews (average 2,500 words). Top management of eight sector firms examine the outlook for their firm and the sector.