Reason for rally in SOX:
Nanometrics (NANO) 20.71 -4.19: Prior to the start of trading, chip equipment company, Nanometrics, issued a revenue warning for Q4. Specifically, the company said it expects revenue to be down approximately 25% from Q3, which is well below its prior forecast for revenue to be flat with Q3. The shortfall was attributed to continuing overcapacity in the semiconductor industry as well as economic deterioration in the U.S. and Japan. In an earlier Story Stock today, Briefing.com addressed the overcapacity issue in general and what it portends for the pace of economic recovery. In short, we suggested the excess capacity will slow the pace of recovery since it will impede capital investment for quite some time. That point aside, the market has held fast in recent months to the notion that the economy, and the semiconductor industry in particular, will be showing meaningful signs of growth by the middle of next year thanks to the Fed's easing actions and the potential passage of an economic stimulus plan. That outlook is clearly reflected in the Philadelphia Semiconductor Index (i.e. SOX), which is up 57% since its Sept. 27 low. Although it is not a component in the SOX Index, NANO was not overlooked in the aforementioned rally as it has surged 92% from its low on Sept. 28-- well, 92% prior to today's losses. Today, NANO is down 17% following the revenue warning that suggests the stock has gotten ahead of itself. Considering NANO cited the fact that its customers are still trying to sort out the overcapacity and reduced demand for semiconductors, the magnitude of its revenue shortfall is anecdotal evidence that suggests the industry has gotten ahead of itself, too, in discounting the timing of a recovery. Last year, some of NANO's biggest customers included the likes of Applied Materials (AMAT), Hyundai, Taiwan Semiconductor (TSM), Lucent (LU) and Nortel Networks (NT).-- Patrick J. O'Hare, Briefing.com
|
