Dec. 13, 2001 – New York, NY – Morgan Stanley has lowered the investment rating of the semiconductor industry to ‘hold’ from ‘overweight,’ citing weak global demand for memory chips in 1Q02.

Mark Edelstone, the investment bank’s chief semiconductor analyst for North America, said he raised the rating for the semiconductor industry to ‘overweight’ in October in view of mounting liquidity in the market. However, share prices of chip issues have since then rebounded sharply, fully reflecting the bullish factor brought by ample liquidity and the visibility of the industry, Edelstone told the Financial Times.

He also said that the latest downgrading is aimed at easing speculative play and an overheated market condition, according to the Times. Edelstone predicted the global semiconductor industry will remain weak in 1Q02 but will rebound strongly starting in 2Q, urging clients to lock in profits within the next two months after recent gains, and to wait for a major rebound in the next cycle.

Sales of the global semiconductor industry is likely to remain flat, or post a contraction of 5% in 2002, but will sustain a growth rate of 20 to 25% in 2003, according to Edelstone.

In related news, Merrill Lynch predicted that sales of semiconductor products in the Asia Pacific region are likely to grow 21% in 2003, up from a moderate growth of 8.5% estimated for 2002.

Dan Heyler, Merrill Lynch’s chief semiconductor analyst for the Asia Pacific area, said he has raised the investment rating to “strong buy” for such issues as MediaTek, Realtek Semiconductor and Sunplus Technology. Meanwhile, he said that the wafer foundry industry has been recovering since 3Q01 and that the industry’s overall production capacity utilization rate is expected to improve to 65 to 70% by the end of this year.