Chip Stocks Rally on Micron, Hynix Talks

Semiconductor stocks surged on Wednesday, spurred by talks between memory chipmakers Micron Technology Inc. and Hynix Semiconductor Inc. — which could help restructure an industry reeling from overcapacity.

Chip stocks also got a boost from increasing sentiment that Intel Corp. will guide fourth-quarter sales to the high end of its given range of $6.2 billion to $6.8 billion when it gives its mid-quarter update on Thursday after U.S. markets close.

"Coupled with a highly promotional environment and lowered expectations, most of the participants in the PC food chain are expected to post results at or above the high end of guidance," wrote U.S. Bancorp Piper Jaffray analyst Ashok Kumar in a note to clients.

The Philadelphia Semiconductor Index, a proxy for the sector, gained 41.69, or 7.7 percent, to 585.80, in its largest single-day move in almost two months. The index, which includes both chipmakers and chip-equipment makers, has soared 61 percent since Oct. 1, well exceeding the broader market. By comparison, the Nasdaq Composite Index  has risen 38 percent in the same time period.

The talks between Micron, the No. 2 memory chip-maker and troubled Hynix, the No. 3 player, could lead to a merger, although analysts said virtually any combination would lead to a reduction in memory-chipmaker capacity, an excess of which has plagued that industry during 2001.

John Geraghty, an analyst with Gerard Klauer Mattison & Co., said higher memory prices could give chipmakers more cash to spend on capital improvements. Semiconductor equipment stocks, in an apparent reaction to the price hike, shot up for a second straight day.

German chipmaker Infineon Technologies and Toshiba Corp. are also in talks about combining their money-losing memory-chip making units, which could further reduce capacity, analysts said, and lead to higher prices.

On Wednesday, Korea's Samsung said it had raised contract chip prices by some 10 percent early in December and Hynix signaled it would raise prices by 10 percent to 20 percent.

Dan Scovel, an analyst with Needham & Co., said investors may have reacted to reports that Micron and Hynix have called in serious teams, including investment bankers, to the discussions.

"That sort of indicates a level of seriousness that, frankly, I'm a little bit surprised at," he said. "I still think it will be a challenge to find common ground."

Micron Technology shares rose $2.57, or 8.4 percent, to $33.06.

Chipmaking equipment stocks also marked gains on Tuesday, spurred higher by a call by a UBS Warburg analyst that the battered industry had hit bottom and was poised to recover.

On Wednesday, the stocks added to the gains made a day earlier.

Shares of Applied Materials Inc., the biggest microchip-equipment maker, rose $3.48, or 8.2 percent, to $45.91. Lam Research Corp. stock gained $1.79, or 7.7 percent, to $25.20. Novellus Systems Inc. stock gained $3.80, or 9.1 percent, to $44.50.

Among chipmakers that saw their shares rise, Intel Corp. rose $1.75, or 5.3 percent, to $34.61, Advanced Micro Devices Inc. shares gained $1.34, or 9 percent, to $16.24, and National Semiconductor Corp. shares rose $1.27, or 4.1 percent, to $32.62. Shares of Texas Instruments Inc. added $2.50, or 8 percent, to $33.50.