Salomon convertible analysts makes chip, electronics picks

By Ronda Fears

Nashville, Tenn., Feb. 28 - Salomon Smith Barney convertible analyst Adrian Miller said signs continue to point to a rebound in semiconductors, communication equipment and computer and electronic products. Thus, now would be a good time to return to or buy into the sector, he said in a report Wednesday. Of some 30 picks, Lucent Technologies, Advanced Micro Devices, Celestica and Sanmina Corp. were at the top of the list.

"When you consider that the technology sector (21.3%) is the largest industry group within the convertible market and the semiconductor/electronics subgroup (47.6%) is the largest subgroup within the technology sector, the prospects of improving sector fundamentals could have a disproportionate effect on the overall return of the convertible market in general and the technology sector in particular. Investors who are properly weighted in this group should benefit from the impending rebound," Miller said in the report.

"Under the prospects of an improving environment within the semiconductor sector, convertible investors, who have punished this group over the past year may want to reenter the group," the Salomon analyst said, and also recommended returning or moving into communication equipment and computer and electronic products.

"Needless to say this needs to be one based on company specific analysis."

Salomon Smith Barney semiconductor analyst Jonathan Joseph said the Commerce Department data out Thursday was very positive and supports the belief that the semiconductor sector continues to dig itself out of the deepest cyclical hole in over 30 years, Miller noted.

According to the data, semiconductor orders showed a strong rebound in January to a 22% year-over-year decline, which was an improvement from the 35% decline in December and well off the cyclical low of the 51% drop in July 2001. Shipments slipped 1% in January from December, while improving slightly on an annual basis to a 36% decline. Despite January's traditionally weak shipment month, Miller said industry sources would indicate January shipments were well ahead of expectations. Inventories continue to decline at an accelerating pace, as well, with January stockpiles down 11% from a year ago.

Communication equipment orders were flat with December and down 36% year-over-year but were well off the 53% drop in August. Shipments were down 5% for the month but improved slightly on a year-ago basis to a 34% decline. Inventories continue to decline sharply, falling 31% from a year ago compared, the analyst said, noting that communications equipment inventories have been declining since April.

Computer and electronic products inventories also continue to decline at an accelerating pace, down 17% from a year ago versus a 14% drop in December.

Miller came up with 30 convertibles in the semiconductor, communications equipment and computer and electronic products group. Some of the issues that made it to the top of the list were the Lucent Technologies 8% convertible preferred, the Advanced Micro Devices 4.75% note due 2022, Celestica's 0% note due 2020 and Sanmina Corp.'s 0% note due 2020.

Others include Motorola, Solectron, PMC-Sierra, LAM Research, L-3 Communications and Texas Instruments.

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