We have talked recently about the semi sector(s) and the recent bounce off the bottom of 11/21. Here is a good summary article of the situation.
<<As chips outpace Nasdaq, investors ask: Is optimism justified?
1:38 PM ET 2/6/09
SAN FRANCISCO (MarketWatch) -- Despite being stung by dramatic drops in sales, many chip manufacturers have seen their shares rise over the past month, as some investors appear to anticipate a bottom for semiconductor industry.
This much has been underscored by gains in the Philadelphia Semiconductor Index $SOX, up about 7% since the beginning of the year. The sector benchmark's outpaced the Nasdaq Composite Index (COMP), which has stayed mostly flat.
So who's right?
Much of the optimism is rooted in the belief that chips are so simply critical in the tech market that demand can't keep falling for much longer in what is still considered the global economy's most robust sector.
"Just as the semi guys were whopped harder in the downturn because they were at the back of the supply chain, so they will get the first acceleration as the market recovers," said Roger Kay, analyst with Endpoint Technologies Associates.
"So, this may be a matter of the market looking ahead," he added.
In a research note dated Feb. 2, Wachovia Capital Markets analyst David Wong noted that many chip companies expect 20%-plus declines in the March quarter.
However, "we remain hopeful that the March quarter will be the bottom for chip shipments, both in terms of absolute sales as well as year-over-year declines," he wrote.[NOTE: not going to happen - YoY declines have a lot longer to go than the March quarter - Don]
Many investors appear to be anticipating a trough for chips.
Despite struggling with losses, chip giant Advanced Micro Devices Inc. (AMD) has seen its shares jump more than 9% this year, while Texas Instruments Inc. (TXN) has gained nearly 11%.
Intel Corp. (INTC) has been mostly flat, but over the past week shares of the No. 1 maker of computer chips have soared more than 13%.
"My theory is that in the fall, people were hearing that demand had fallen off a cliff, but nobody knew how bad the inventory buildup was going to be," said analyst Nathan Brookwood of Insight64, a technology research group.
Fourth-quarter financial results, he added, "suggest chip companies quickly stepped on the brakes, so there's not going to be the huge inventory overhang that characterized the 2001 downturn. The industry still faces the same macroeconomic factors as every other sector, but at least companies won't have to dig themselves out of a huge inventory problem."
Erring on the side of caution
However, some analysts are skeptical that either the chip industry or the tech sector in general has seen the worst of the downturn.
"Semiconductor stocks are the first to see demand spikes, so investors are looking there for an indication," said analyst Crawford Del Prete of International Data Corp.
"With the bad news from leading semiconductor suppliers so pronounced recently, folks are trying to call a 'bottom.' In my opinion, this is premature," he said.
Late last year, Gartner Inc. predicted the economy is in such bad shape, the chip industry will likely suffer its first ever back-to-back yearly sales decline during 2009.
"It may be a little early, but some birds are up before dawn," Endpoint Technologies' Kay said.
When it comes to semiconductor equipment, the industry's undergoing its own major business-model changes, meaning that getting out of the hole may take even longer, said analyst Edwin Mok of Needham & Co.
"Semicap will go through a longer drought than these chip companies," he said, speculating that the market is in such disarray that chip-equipment makers won't see a meaningful business turnaround until around the middle of 2010.
Analyst Brian Piccioni of BMO Capital Markets also was skeptical about investor optimism over prospects for the chip sector, and about the tech arena in general.
"There is a deeply held, yet delusional, view that tech does well during a recession," he said. Referring to the last major tech downturn, he added, "In my humble opinion, 2009 will make 2001 look like a cakewalk."
The tech market's 2001 collapse, he said, was marked by unrealistic demand and "massive inventory overhang." By contrast, many companies this time around have "managed conservatively.
"And yet were are seeing 20%-30% sequential and year-over-year declines," Piccioni said. "This is mostly, though obviously not entirely, due to collapsing demand, not inventory liquidation."
The tech sector, he added, will likely continue to feel the downturn's pain: "There is a religious belief that tech demand occurs independent of the economy. While that may be true of waistlines, there is no evidence to support that view of tech." |
