Tuesday, December 07, 2004
Will it be a U, V, W, or Canoe Shaped Recovery?
Are we there yet? Better yet: Does it matter? Following a tepid quarterly reporting season and some disconcerting news on the economic front, a number of industry analysts and Wall Street prognosticators are telling us to buy semiconductor and semiconductor equipment stocks because a turn for the better is anticipated in Q1 '05. Have to admit, I can buy into the late Q1/Q2 '05 bounce theory. The push over the edge came about when Intel's (INTC) mid-quarter update came in much better than anticipated. If you have been reading the Stock Blog you know that I was anticipating a good result before the release of the report. Along with the excitement about Intel there is cheer growing in the ranks of those following Advanced Micro Devices (AMD). Couple these more bullish sentiments with the recent drop in crude oil prices (see Econ Blog), the cash that is coming into the market and you have some fuel for a rally. Clearly Intel, and to a lesser extent AMD, have a lot to say about the future of the chip business. When they are bullish the markets tend to respond. It would be foolish to openly dismiss their bullish tidings. Unfortunately they are not the final answer. Is it all just pre-holiday noise? While Intel and AMD are battling for front page headlines we're hearing, deeper down the food chain, more dour outlooks from companies that have proven to be very good indicators of future action. For one example, check out last week's news from Microchip (MCHP). Microchip's CEO warned of an inventory build way back in April and now his company is saying that business will be off as much as 7% in the coming quarter. Ouch...... If we are going to bounce next year we have to wonder how big that bounce will be. Will it be a U, V, W or canoe shaped recovery? Will it be enough to push our stocks higher? Will profitability be better during the next ramp? If the recovery is going to come in late Q1 or, early Q2 (which is normal when you look at our seasonality charts), it is probably prudent to anticipate another downturn in Q3 '05. Here's a sample of one of the charts in this month's Chart Watch:
More in the Chart Watch Section......