With Wall Street making an uninterrupted zoom to all-time higher ground ever since the first day’s trading in 1987, investors are casting around for neglected stores of value, and have lighted upon the host of small computer and microelectronics stocks quoted on the NASDAQ national over-the-counter market. There is an enormous weight of money overhanging Wall Street as investors who took profits in December ahead of the less friendly treatment of capital gains look for a new home for their cash. The technology sector has been right out of favour ever since the new issues boom of the early 1980s went emphatically bust in 1983, and there is a widespread feeling among analysts and fund managers that the sector is well overdue for a rebound – and that while many of the stocks in the sector have fully participated in the current bull run – the Hambrecht & Quist Technology Index of 175 stocks rose 17.4% in the first two weeks of the new year compared with a rise of 7.3% in the Dow Jones Industrial Average – there is still seen to be plenty more for investors to go for, even when the market as a whole does run out of steam. The rally in the sector has been led by DEC, which lent the lie to IBM’s oft-repeated warnings about the dull state of the computer market by turning in storming fiscal second quarter figures (CI No 600). A key strength in the sector is the fact that many of the companies now represented have been through very hard times indeed in the past couple of years and have demonstrated themselves to be survivors. A classic example is Seagate Technology, the manufacturer of small Winchester disk drives, which almost unnoticed has stormed up to the point where it is on the brink of becoming a billion dollar company, no mean feat when its revenues come entirely from OEM disk drives. Last week, Seagate reported fiscal second quarter net profits of $38m on sales up 150% at $252m (CI No 599). The New York Times did a straw poll among analysts last week, and names most often mentioned not surprisingly included Seagate Technologies. A pointer perhaps to the widely expected recovery in Scotland’s our own Rodime Plc. Also in the disk drive sector, MiniScribe and Micropolis have been down into the Valley of Death with Seagate and emerged smiling. A key strength of disk drive companies now is that their growth is being fuelled not simply by one or two big contracts from flagging IBM, but a host of contracts from workstation companies even smaller than themselves, as well as business from a large number of majors that are doing well out of IBM AT-alikes. Also looking very powerful is super-high-capacity disk manufacturer Maxtor Corp, which hasn’t suffered like its siblings, and business there still seems to be going like a train.
Continues to amaze
The increase in the December semiconductor book-to-bill ratio to 1.08 from 0.99 in November is thought in large part to be down to large orders recorded by just three companies in the sample – Intel, Monolithic Memories and LSI Logic. Intel, not surprisingly, has already garnered considerable investor attention, but the other two are worth another look, as is Advanced Micro Devices, leaner and fitter after breaking its no-lay-offs policy, and, as an Intel second-source, a beneficiary of the rising AT activity. National Semiconductor Corp also rates a mention, as does Standard Microsystems. In the networking and data communications sector, the names that crop up include Timeplex, Digital Communications Associates, the acquisitive exploiter of the desire of users to give their IBM Personals the ability to talk to their mainframes efficiently and at low cost. In the workstation sector, Sun Microsystems continues to amaze, and its only major problem appears to be managing explosive growth, although the backing by 11 major companies of the X Window standard rather than Sun’s NeWS is clearly a setback. Apple Computer, which has proved the doubters wrong and demonstrated that there is still room for at least one standard other than MS-DOS, could soon be up there pitching against Sun in th
e workstation market, adding an important new string to its bow. Cray Research continues to attract support as it demonstrates that coming out with new supercomputers – and even Cray-compatible minisupers – is one thing, getting people to buy the things is quite another. On the software front, Pansophic Systems is winning plaudits in the IBM world, Management Science America looks poised for a strong recovery, and the rate at which it is cleaning up its balance sheet also makes Sterling Software worth another look.
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