|
|
Get Four
|  | DECEMBER 23, 2004
Tech Outlook 2005 -- Part 1 S&P analysts provide their 2005 outlook for chips, chip equipment, hardware, electronic manufacturers, and software The tech sector lost some shine in 2004, as worries about economic growth and weaker demand persuaded investors to look elsewhere for growth. So far this year through Dec. 17, Standard & Poor's Information Technology index edged up just 0.3%, vs. a 7.4% gain in the broader S&P 500. The tepid gain isn't too surprising after the 47.2% jump for Info Tech in 2003. However, telecommunications stocks have fared much better this year, climbing 16%, after rising just 3.2% in 2003, amid consolidation news and more focus on dividend-paying stocks. The strongest performers in 2004 were Internet software and services (up 61%), followed by wireless telecom services (up 53%). Semiconductor-related shares were the big losers. For clues about what to expect from info tech and telecom, BusinessWeek Online asked S&P analysts about their 2005 outlook for key industry segments, along with their favorite stocks. Overall, S&P has a market weight recommendations on both the Info Tech and Telecommunications Services sectors. This means investors should be particularly choosy. TOP NAMES. S&P has its top ranking on a few familiar names, including software makers Microsoft (MSFT ) and McAfee (MFE ) and hardware giants IBM (IBM ) and Dell (DELL ). In Internet advertising, S&P's favorite pick is ValueClick (VCLK ). S&P also has strong buy recommendations on two analog chip outfits, Maxim Integrated Products (MXIM ) and Linear Technology (LLTC ); electronic manufacturing services provider Sanmina-SCI (SANM ); storage provider EMC (EMC ); and outsourcing companies Affiliated Computer Services (ACS ), Automatic Data Processing (ADP ), and Computer Sciences (CSC ). In telecom services, S&P's top picks include Verizon (VZ ), CenturyTel (CTL ) and Canada-based BCE (BCE ). Among wireless-telecom equipment, Qualcomm (QCOM ) and Motorola (MOT ) get the top ranking. COMING ATTRACTIONS. Part 1 of this two-part series provides outlooks from S&P chip analyst Amrit Tewary, semiconductor-equipment analyst Colin McArdle, computer-hardware analyst Megan Graham-Hackett, information-technology services and data-storage analyst Richard Stice, software analyst Jonathan Rudy, and specialty software analyst Zaineb Bokhari. Part 2 of this report will offer overviews from Scott Kessler, who covers Internet software and services, consulting and outsourcing analyst Stephanie Crane, wireline telecom services analyst Todd Rosenbluth, wireless-equipment analyst Ken Leon, and communications-equipment analyst Ari Bensinger. Amrit Tewary, semiconductors Standard & Poor's maintains a neutral outlook for semiconductor stocks over the next 12 months. Despite the significant year-to-date decline in chip-stock prices (the S&P Semiconductor Index fell 24% through Dec. 17), we think current valuation multiples are warranted in most cases, given some lingering inventory concerns, some macroeconomic uncertainty, and our expectation for moderating sales growth for the chip industry in 2005. We think significant gains are unlikely for most chip stocks in the near term, given our belief that we're entering the latter stages of the current industry upcycle. We expect chip industry sales growth to moderate from a projected 30% this year to about 8% in 2005, before weakening to a flat-to-down year in 2006. Despite our overall neutral outlook for the industry, we do have 5-STARS, or strong buy, opinions on two chip stocks that we believe will outperform peers during the next 12 months: Maxim Integrated Products (MXIM; recent price: $42) and Linear Technology (LLTC; $40), two high-end analog chip outfits that have similar businesses. We think the high-end analog business has more attractive long-term growth prospects than most other chip segments.
BW MALL
SPONSORED LINKS
Buy a link now! | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
