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Special Report

Chip-Equipment Sector Hasn't Bottomed Yet

The near-term outlook and the stocks' valuations simply don't match up.

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With almost every chipmaker having already warned of poor earnings this quarter (sometimes twice), it's not a stretch to say the sector's near-term outlook has turned very, very ugly. Chip-equipment stocks, meanwhile, have been surprisingly resilient during this Nasdaq sell-off. Chip-equipment shares have edged up 6% over the past three months, while the Nasdaq has fallen by 25% over the same period. But based on capital-spending budgets in the chip sector, we think this relative strength will prove fleeting.

How Bad Will 2001 Be? 
As the world's largest chip-equipment maker, Applied Materials (AMAT) commands investors' attention. During its earnings call in February, the industry's "big dog" offered its perspective as to how grave annual industry sales would turn out. At that time, Applied's chief executive, James Morgan, was very hesitant to provide industry sales projections given the uncertainty in the chip market. Eventually he said that equipment sales would decrease 10% in 2001.

Jeremy Lopez does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.