Skip to main content

Warning signs for semiconductors?

I have been pounding the table for tech and especially semiconductors for months. Today, however, I came across a post at EETimes.com that throws a little cold water on my enthusiasm.

Here is a quote from the article:
Gartner Inc. analysts Bryan Lewis and Peter Middleton, said: ''Worldwide semiconductor revenue in 2010 is projected to reach $290 billion, a 27.1 percent increase from 2009 revenue of $228 billion. The outlook for the semiconductor industry has improved from Gartner's first quarter of 2010 forecast, when we projected worldwide semiconductor sales to grow 19.9 percent.

''Chip revenue growth is clearly outpacing system revenue growth, and that is a concern. Gartner's new semiconductor forecast has below-average growth in the second half of 2010, as we are anticipating a minor correction to realign semiconductor sales with electronic system sales.''
In other words, the chip makers are cranking out semiconductors but those companies building the systems that use those semiconductors are not keeping pace. One would expect this to lead to oversupply of chips, slowing sales and falling prices for semiconductors.

The article further considers issues related to current demand. Bill McClean, president of IC Insights Inc., is quoted as saying: "While total IC industry capacity utilization was only 57 percent in 1Q09, it reached 93 percent in 1Q10, a level that was higher than before the global economic crisis! As a result, in 1Q10 there were a number of device types that were reported to be very difficult to secure or that saw leadtimes dramatically increase."

My interpretation of this statement is that with demand at such high levels, there is only one direction left for it to go and that direction is down. Again, that would translate into slowing sales and falling average selling prices.

As always, a slowdown in chip sales kills the semiconductor equipment companies, as well. After all, why add capacity if sales are declining? And so the whole industry suffers.

How to play it --

If these scenarios really do start to play out as predicted by Gartner and IC Insights, this would not be a bad time to consider the ProShares UltraShort Semiconductors (SSG). This ETF will allow an investor to bet against both chip makers themselves and the companies that make IC production equipment.

Disclosure: no position in SSG at this time
Labels:

Comments

Post a Comment

Popular posts from this blog

Time to be conservative with your 401K

Most of the posts I and other financial bloggers write are typically focused on individual stocks or ETFs and managing active portfolios. For those folks who are more conservative investors, those whose main investment vehicle is a 401K, for example, the techniques for portfolio management might be a little different. The news of stock markets falling and pundits predicting recession is disconcerting to professional investors as well as to those of us who are watching our balances in an IRA or 401K sag. What approach should the average 401K investor take? Let's assume that the investor is contributing on a regular basis to one of these retirement accounts. There are two questions that the investor needs to ask: 1. Should I stop putting the regular contribution into stocks? My feeling is that investors making regular contributions are being handed a present by the markets. Every week the market goes down, these investors are lowering their average cost. When markets reco...
7 comments
Read more

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.
Post a Comment
Read more

Sprint - Why WiMAX?

I was somewhat surprised when I heard that Sprint Nextel ( S ) was building a separate network based on WiMAX technology. This is not a replacement for its 3G cell phone system but in addition to it. Why would they do such a thing given the scale, complexity and cost? Are they doing this in the hope that if they build it, they (customers) will come? So first of all, what is WiMAX and why is it significant? Technically speaking, it is a 4G wireless broadband network that uses the mobile WiMAX (Worldwide Interoperability for Microwave Access) IEEE 802.16e-2005 technology standard. Why is that good? Because you can get high-speed Internet access with it for devices ranging from phones to PCs and devices we haven't thought of yet. And in this case, WiMAX "high-speed" is significantly faster than typical Internet access via current mobile phone technology. It will be a real data network, not a data pipe bolted onto a telecommunications network. What could this lead to in the f...
3 comments
Read more