Steve, Here are some ideas on the +Interest-rate + Semi-Eqpt relationship.
First, the correlation does not hold over time. It is only reliable
for the initial stage of interest rate increases. Like when the FED
is attempting to prevent overheating.
Under these conditions, we know that the Economy is very strong - close to overheating. Thus, Semiconductor manufacturers are making their forward projections based on the best of conditions. Due to the lead times on Fabs, and Updated technology tools from Semi-Eqpt mfgs, they must order looking ahead for 6 months to 2 years.
If the FED is successful in preventing the Economy from overheating,
the Semi's look like heroes, and everything increases on trend. If the FED is too late, and has to run rates up several times, bringing on a Recession, or Near Recession, then Semi-Eqpt orders will be delayed or cancelled, causing a Semi-Eqpt Bust-cycle.
Rising interest rates will not be good for Semi's, since end-users' JITIC will slow-down Semi orders, and result in price softness. Thus, when interest rates uptick, Semi stocks soften while Semi-Eqpt stocks rise.
Overall, it is a combination of the above and Moore's Law that gives Semi-Eqpt stocks the extra boost at the first sign of rising rates.
The Semi's cannot take the risk of being left behind on the newest technology - for efficiency and product acceptance.
-Historical foundation -
Back in the 1970's, some US Semi's were too cautious on building new Fabs, and updating Semi-Eqpt in old Fabs. That gave Japanese companies their opportunity. Between 1975 and 1980, US Semi's lost a giant chunk of the market - and were not able to get it back. End users found the US Semi's to be unreliable compared to the Japanese.
That led to the Semi-Eqpt industry, and the determination to never fall behind again. Better to take some cyclical losses than to lose customers. This attitude keeps the Semi's ordering Semi-Eqpt somewhat longer than the CFO's would like.
Enough already! Hope I didn't put you to sleep. :)
My bet this time is that the FED will get it right. If so, the Semi-Eqpt up-cycle will continue for a couple more years at least.
In the meantime, Semi-Eqpts are a great place to hang out while the Financials & Internets get hit due to higher rates.
-And I believe that NVLS is one of the really great companies. It was awesome watching them move away from the 300mm to the Copper - hardly missing a beat.
Good luck, NVLS longs!
Herbert
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