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Wall Street Beat: Chips are up, why are stocks down?

Wall Street Beat: Chips are up, why are stocks down?

Signs abound that the global chip industry is looking at one of its best years ever, paced by a strong PC market and sales of a range of hot gadgets, including Apple's iPad. But despite positive news for the technology industry, stock shares in many tech companies are sliding due to concerns over faltering growth caused by debt problems in Europe and elsewhere.

Market researchers have been nearly unanimous this year in forecasting blistering growth for technology products, especially compared to last year, when demand dove over fears of global financial health.

The first quarter was encouraging, with a number of industry watchers noting stellar year-on-year growth in PC shipments. IDC, for example, put the figure at 27.1 percent, saying buying was strong by both consumers and businesses.

Strong PC sales have been among the reasons chips have done so well this year, but strong sales of mobile phones, LCD TVs, Blu-ray Disc players and other devices have also helped.

The chip market is so good right now that the chairman of Taiwan Semiconductor Manufacturing (TSMC), Morris Chang, on Thursday reiterated that his company may need to buy more production line equipment, thereby exceeding its hefty capital spending target of US$4.8 billion.

He also revised TSMC's forecast for overall chip industry growth this year up to 30 percent, from 22 percent previously.

TSMC is considered a technology industry bellwether for its size and the range of devices for which it makes chips, and its performance is watched closely for signs of market health. The company is the world's largest contract chip maker, manufacturing chips for global companies such as Texas Instruments, Qualcomm and Nvidia.

Despite the rosy forecasts, technology stocks in general have followed global stocks down this week over worries that growth might slow in the second half of this year.

Indeed, financial advisory Collins Stewart downgraded some chip stocks earlier this week, noting worries over Europe and that "additional checks in China indicate evidence of broader weakness in end-demand in LCD TVs, automotive, handsets, and PCs."

U.S. stock markets have led declines over the past few days, including a sharp drop on Thursday. The widely-watched Dow Jones Industrial Average fell 1.4 percent on Thursday, while the S&P 500 declined 1.7 percent and the technology-heavy Nasdaq Composite Index dropped 1.6 percent.

The declines in America have prompted sell-offs elsewhere as well. Japan's Nikkei index was down 2.2 percent during early afternoon trading in Asia, while Taiwan's Taiex was off 1.7 percent and South Korea's Kospi index had fallen 0.8 percent. The Shanghai Stock Exchange's composite index, however, was only 0.1 percent lower.

Some major U.S. technology companies paced declines on the Nasdaq. Intel, the world's largest chip maker, fell 2.4 percent on Thursday, while PC giant Hewlett-Packard dropped 2.1 percent and business software leader Oracle declined 2.0 percent.

The sell-off in Oracle's stock may have been premature. After the close of regular stock trading, Oracle reported fiscal fourth-quarter earnings that beat analysts' expectations, sending its shares 4 percent higher in after-market trading.

Analysts say that despite the possibility of upbeat earnings among technology companies in the current quarter, markets will be watching for signs the strength can continue in the face of broader economic troubles.

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Tags NasdaqComponentsTaiwan Semiconductor ManufacturingOracle

More about AppleDow JonesHewlett-Packard AustraliaIDC AustraliaIntelNvidiaOracleQualcommTaiwan Semiconductor ManufacturingTexas Instruments AustraliaTSMC

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