Earnings expectation for semiconductor companies in the US (page 1 of 3)

US Stocks

The advisory committee voted 8 to 3 to recommend that the FDA approve the drug in Type 2 diabetes. Earlier Bristol-Myers-Squibb and Sanofi-Synthelabo filed their Avapro, a hyper tension drug as well, for the same application, but failed in the US while getting an approval in Europe.

This is good news for Merck & Co., as it is depending on fast growing drugs such as Cozaar, to offset generic competition for its blockbuster painkiller Vioxx. This development is positive for Merck's share price which has been under pressure in the past few months, due to some concerns about the company's product pipeline, as the follow-up version of Vioxx was withdrawn for more data. However, at current levels the stock has priced in quite a lot of disappointment and trades with a 20% discount to its peers regarding the earnings.

Another pharmaceutical company that has been struggling for quite a long time is Bristol-Myers Squibb. The company's CEO lately got a notice from the board that he would loose his job, if he was unable to turn around the company soon. We would not bet on the CEO's success, as there is not much to come out of Bristol-Myers pipelines in the near term, which could act as a growth catalyst.

Pfizer has been very successful in the past, and still is growing faster than its US competitors. However, this has not been reflected in the share price over the last few months. Rather, it has been weighed down due to competition for its top selling cholesterol-lowering drug Lipitor, coming from Astra-Zeneca's Crestor. Assuming that Crestor becomes a $3-4 bln drug in the next few years, there is still room for growth as the total US market for cholesterol-lowering drugs totals $14 bln. Lipitor could possibly grow by 50% to $10 bln in sales in the next five years. Apart from that, Pfizer expects to file 15 new drugs to the FDA by 2006, which should sustain the company's long term growth.

The State of California's jobless rate climbed to 6.4% in March, which is a 5-year high, as employers continued to wait for clearler signs of recovery. Being the sixth largest economy in the world, California certainly has an impact on the nation's economic growth.

The good news is that the layoffs are levelling off, with Southern California doing better than Northern California for obvious reasons. The Bay Area continues to bear the blunt of the State's slowdown. The jobless rate in Santa Clara County, the heart of Silicon Valley, was 7.4% last month.

So far, the State is not creating any net new jobs. Only the services and trade sectors are showing net job gains in March, while transportation, public utilities, manufacturing continued to shed jobs.

The stock market remains extremely nervous, the mere mention of a SEC investigation will send stock prices plunging, coupled with the 1Q result announcements, the investment plan for the interim is to accumulate fundamentally sound companies on weakness.

US Technology

During the last earnings season in February, semiconductor companies have been cautious in forecasting for the March-1Q02 results. As a consequence, we do not expect those companies to miss their forecasts on a broad base. However we do not expect any upbeat results either. Focussing on the current quarter (June-2Q02), we expect results to be quite flat relative to the March quarter (which is currently being announced), due to the lack of immediate demand drivers. PC sales are seasonally flat in the June quarter, as are handsets and consumer electronics.