Tech Comeback Belies Doomsayers’ Predictions

What spring tech-stock crash?

Shares of Irvine-based computer chip developer Broadcom Corp. reached a new closing high Thursday, surging $12.63 to $249.31 on Nasdaq to recover the last of the deep losses suffered in the March and April market dive.

Broadcom isn’t alone: While the technology-heavy Nasdaq composite index remains 17% below its March record high, a growing number of tech shares have already completed a round trip back to, and above, their old highs.

The fast recoveries belie predictions made in April and May that crushed tech stocks would take a long time to get back to their old price peaks--if ever.

The new highs in tech names suggest that many investors, even some who lost significant sums in the crash, haven’t been afraid to jump back into the market.

Indeed, the “momentum” investing game--buying stocks that are going up, often for no reason other than that they are going up--has become a hot strategy once again on Wall Street.

But analysts also note the latest surge in tech stocks has at least had some fundamental underpinnings. For one, optimism is growing that U.S. interest rates have peaked. Rising rates had been a heavy drag on stocks.

What’s more, in the case of Broadcom and other chip makers, expectations remain high that the booming demand the industry has enjoyed over the last nine months will continue.

Late Wednesday, chip and cellular phone maker Motorola Inc. said its second-quarter operating earnings nearly doubled and that chip orders jumped 31% in the quarter.

Motorola shares surged $3.06 to $39.31 on Thursday, helping drive other semiconductor stocks higher. Intel Corp. gained $2 to $143.19 and Vitesse Semiconductor Corp. surged $6.75 to $86.69.

Earlier in the week, better-than-expected earnings from Internet sector giant Yahoo helped lift many Net shares. That sector had been one of the weakest in the tech universe in recent weeks.

Many investors seem to be thrilled with the earnings that tech firms are reporting--and even with some losses. E-commerce software firm Ariba Inc., for example, soared $27.69 to $131.19 on Thursday after reporting a narrower-than-expected loss for the quarter.

But many of the tech sector’s leaders of recent weeks are companies like Broadcom, which are already profitable and boast strong growth prospects. Broadcom is expected to earn 78 cents a share this year and $1.05 next year, according to earnings-estimate tracker IBES.

At its new high, Broadcom is the second-most-highly valued tech firm in Southern California, behind biotech giant Amgen in Thousand Oaks. With a market value of $53.6 billion, Broadcom in recent weeks has barreled past San Diego wireless giant Qualcomm, formerly the region’s dominant tech firm.

Broadcom “is in a league all by itself” in the market for chips that enable high-speed communications over the Internet, said market analyst Alex Gauna of Banc of America Securities. “No one is as large. No one executes as crisply. No one touches as many elements of the network as Broadcom.”

Market analyst Rick Billy credited Broadcom with targeting its technology to markets with the greatest potential, including cable set-top boxes and cable modems.

“Unlike many other chip companies in the communications sector that tend to be in a lot of individually small markets, Broadcom is addressing some very, very large markets,” Billy said.

Still, Billy warned that the resurging prices of Broadcom and other tech issues have sent their valuations, relative to earnings, back into the stratosphere.

“I wouldn’t single out Broadcom,” Billy said. “A whole group of companies are all at valuation levels which are higher than I’ve seen. To change as radically as they appear to have changed, and to be maintained at these levels, one could be skeptical.”

Industry analyst Ida Rose Sylvester of the research firm DataQuest said Broadcom has gained investor confidence by laying out “a fairly clear road map into the future” and sticking to it.

“They’ve been able to stay about one step ahead, and to deliver what they said they would,” she said. “They are definitely trying to broaden the product line as well as expand into new markets so they don’t run out of running room.”

But Sylvester said the company faces stiff competition in every one of its markets, especially the fiber-optic networking arena, which Broadcom entered in May.

Broadcom is expected to announce its quarterly earnings Tuesday.

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Chip Maker’s Rebound

Shares of Broadcom recovered the last of their deep losses in the spring and closed at a record high Thursday, as the tech sector continues to resurge. Weekly closes and latest on Nasdaq (ticker symbol: BRCM):

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Thursday: $249.31, up $12.63

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Source: Bloomberg News

Round-Trippers, Or Nearly So

These technology stocks are among those that have either fully recovered their spring losses or are nearly there.

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Ticker March May Thurs. Thurs. Stock symbol peak low close change Broadcom BRCM $246.00 $118.30 $249.31 +$12.63 Dataram DRAM 28.19 17.25 38.88 +2.94 Intel INTC 144.06 106.06 143.19 +2.00 Intl. Rectifier IRF 46.00 35.75 59.63 +3.63 Micron Tech. MU 70.50 50.25 92.00 --2.00 Nortel Netw. NT 71.50 48.00 76.00 +1.00 Oak Tech. OAKT 19.31 13.38 27.00 unch. Semtech SMTC 73.00 45.00 87.56 +1.56 Siebel Sys. SEBL 167.69 99.50 182.06 +4.50 Varian VARI 48.44 27.88 62.88 +2.50

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March peak prices are closing high prices.

Source: Bloomberg News