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Do you feel lucky?
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October 10, 2001: 6:02 p.m. ET
Semiconductor stocks surged Wednesday -- but profiting long-term is a game of chance.
By David Futrelle
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NEW YORK (CNNmoney) - Could this be, might it be, oh lord please let it be, the bottom at last? Some tech investors evidently think that the worst is indeed over for the long-suffering semiconductor industry -- on Wednesday, the Philadelphia Semiconductor Index shot up nearly 7 percent.
But where exactly was the good news? After the bell Tuesday, Motorola, which derives a good chunk of its business from semiconductor sales, announced its third consecutive losing quarter. And Wednesday morning, management projected that losses next quarter would be even steeper than expected.
Perhaps more to the point for chip investors, Motorola said it expects global semiconductor sales to fall some 25 to 30 percent this year, worse than the 15 to 20 percent it had been forecasting. Motorola had been anticipating a big rebound in 2002, but now expects growth of only 5 to 10 percent.
This dour outlook comes on the heels of an earnings warning last week from PC chipmaker AMD (AMD: up $0.73 to $9.59, Research, Estimates), which said that it now expects that revenues for the September quarter will drop some 22 percent from the previous quarter.
Taking bad news in stride
Despite the steady drumbeat of downbeat talk, investors have been quick to jump back into the sector at the slightest hint that the barrage of bad news might be starting to ease up -- even a teensy bit.
One possible catalyst for Wednesday's move seems to have been some vaguely positive remarks on the sector from analysts at Merrill Lynch.
Meanwhile, Deutsche Banc Alex. Brown analyst Ross Seymore announced he was starting coverage of several analog communications chipmakers, and assigned "buy" ratings to three of them -- including Fairchild Semiconductor (FCS: up $0.95 to $19.30, Research, Estimates) and Maxim Integrated Products (MXIM: up $3.24 to $42.61, Research, Estimates). "The worst of the semiconductor downturn [is] past," the analyst wrote.
Same old song
Haven't we heard this before? Well, yes -- many times. Back in April, Salomon Smith Barney analyst Jon Joseph inspired a big rally in chip stocks after he suggested, based on little real evidence, that the bottom was near. While most other analysts remained skeptical, Joseph was joined in the following months by a number of other would-be semiconductor bottom callers. All of whom were, to put it politely, early.
Chip investors -- like Fox Mulder of the X-Files -- desperately want to believe. But every chip rally so far this year has fizzled out. Will this time be any different? Maybe. Chipmakers are making real progress clearing out inventory. But no one yet can tell just when demand will start to perk up again -- or how strong it will be when it does.
As a result, even those who think the worst is past aren't telling investors to back up the truck just yet. Indeed, Deutsche Banc's Seymore notes that even the best-positioned communications chipmakers, none of which are particularly cheap, face continuing economic uncertainty and declining profits in the short term.
"In our opinion," Seymore wrote in a research note, "successfully investing in analog semiconductors for the near term requires either being extremely selective, extremely lucky, or both."
Do you feel lucky? 
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