Since we do not expect oil prices to drop significantly in the near term, we can only recommend a Hold on UAL shares.

Hold Semi Manufacturing Int'l

Semiconductor Manufacturing International Corp. (SMI) is a Chinese semiconductor foundry company with multiple integrated chip wafer fabrication plants. December quarter top- and bottom-line missed the consensus estimates. We remain concerned regarding operational performance in the near-term given the severe price declines in DRAM.

In the first quarter of the current fiscal, revenue is expected to be flat to a slight decline from the fourth quarter. Management noted more revenue will come from consumer related products.

Management anticipates depreciation and amortization is expected to be between $190 and $210 million. Capital expenditures are expected to lie in the $200 to $230 million range. We believe the shares of SMI are currently fully valued and expect them to trade at current valuation metrics.

SMI grew strongly in preceding quarters, its extensive foundry services and aggressive pricing permitting the company to gain share in the foundry space. In particular, the company witnessed strength in the memory area and in the computing end market. This was due to the large expansion of DRAM capacity on the 300mm Fab 4 production line.

However, the large shift in product mix towards the lower ASP DRAM severely impacted margins the past several quarters. Management has trimmed or pushed-out expansion plans for 2005 to 2006-2008, deviating from the original plan. We have set a price target of $5 and continue to rate shares of SMI a Hold.