The semiconductor industry has been going through the worst slump in its 50-year history. Stocks such as Germany's Infineon have halved and halved, and halved again in the past three years, and even now it is not clear whether the falling has stopped. Recovery keeps being postponed.
Infineon shares have been heading back down towards €7 following results last week at which Mr Ulrich Schumacher, the chief executive, said the market environment would remain difficult for the foreseeable future.
Mr Schumacher tried to lighten the gloom by adding: "I do think that in the next two or three quarters we will have finally passed through the bottom of the trough." However, analysts warn that any recovery following that is likely to be shallow and fitful.
Infineon is heavily exposed to D-Ram chips, the ones used for personal computers. Average prices for the benchmark 128-megabyte chip crashed from $15 (€13.8) three years ago to about $1 a year later and never really recovered. They have been superseded by the more expensive 256-megabyte chip, but these are falling rapidly as well. From $9 in November they are already down to $6.50.
Mr Uche Orji of JP Morgan, who recently upgraded Infineon from "underweight" to "neutral", nevertheless worries about such constant pricing pressures on what is, in effect, a niche player.
He believes the company's new plant in Dresden gives it the best facilities in the world, enabling it to compete on the same footing as its big rival Samsung Electronics. In contrast, the Franco-Italian company STMicroelectronics, Europe's other leading chip-maker, does business in a broader range of industries.
Last week's results from STMicro confirmed the impression of a company surviving bad times somewhat better. Fourth-quarter figures showed strong improvement in net income and the shares rose for a while on the day.
But analysts at Dresdner Kleinwort Wasserstein sounded a cautionary note, pointing out that pricing pressures kept the gross profit margin flat compared with the third quarter. They were also concerned at the "downside risk" for the first two quarters and stuck with their "hold" recommendation.
Mr Pistorio's global growth forecast might also turn out over-optimistic. JP Morgan says long-term growth rate for semiconductors may be only 7 per cent to 8 per cent.
While the chip sector retains the advantage of high beta, with stocks soaring ahead when broad sentiment improves, a selective approach would seem advisable. Hardly anyone is recommending bulk buying and many advise that at best the stocks are a "hold".
Until an exciting new technology comes along, pricing pressure on the chip industry will continue to be a big headache. - (Financial Times Service)
