Thursday, May 21, 2009

Attending Semicon West?

If you are out surfing around check out the poll over on LinkedIn that asks if people will be attending Semicon West this year. Results are here (you might have to log in to see this):

I've heard from several people that booth count is going to be way, way down and that the semiconductor section is now going to be in the South Hall of the Moscone Center and InterSolar will be held in the North. Talk about shrinkage! Whew!

For what it's worth, my LinkedIn profile is here:

Tuesday, May 19, 2009

Business vs. Stock Recoveries

You've probably read about it yesterday but yet another sell-side analyst upgraded a group of SCE companies. I have to tell you my friends in the business are very cynical about this. And yes, I know that Kulicke & Soffa (KLIC) stated that their business has picked up and that they are often noted as a canary in the coal mine for the chip industry - which, by the way, was a designation they were pegged with right here many, many years ago.

During our discussion of the upgrades one grizzled industry veteran shared the following:

In my opinion the equipment market will turn up when all the following happens (in order)

1. Chip makers see enough upswing in orders to actually turn on unused tools
2. Chip makers stop taking parts from unused tools and are forced to buy new spares
3. Chip makers unwrap tools still in crates and begin to use (dirty little secret of the industry)
4. Chip makers get marginal utilization of 80%
5. Chip makers actually make money at 80% utilization rate
6. DRAM makers keep their pledge to shutter unprofitable fabs and don't decide to give them one last shot.

....then the equipment guys will see enough orders to warrant an uptick in their stock.

The history of what it takes to move stocks and what it takes to move the semiconductor cycle have increasingly become different things. I'm not going to question whether or not the stocks will lead the cycle - they will - but most likely after numerous false starts. If you are driven to invest based on fundamentals that is not good enough. All one needs to do to see that as the case is to note the "buy them for the turn" table pounding that has been going on for the last two years.

The question then becomes: "By how much should the stocks lead the cycle? 6 months, 12 months, 24 months?"

If you are trading the beta, at least the bit of beta that remains in the stocks, it doesn't matter. If you are taking a little longer term approach and actually investing for a cycle play then it does.

Here are a few more questions and thoughts we've been discussing on the mailing list:

Is the worst over?

Coming from near zero, I’d say yes. This cycle is very different for a host of fundamental reasons and though we are getting a bounce off the bottom it doesn't tell us anything about the shape of the recovery.

Will the industry even get close to peak margins again? That's highly doubtful. Looking up and down the chain suggests that a weakened semiconductor business will continue to weaken the capital equipment business.

Which brings you to another set of questions that will hover over the industry as this cycle (if you want to call it that) develops: Are there more consolidations ahead? For what reasons, and what companies?

Yeah, this could go on all day. The sense here is that even more realities will surface in the next few quarters. That should make for a very interesting summer in semiconductor land.

Wednesday, May 06, 2009

Today's weak analysis winner is....

Today's weak analysis winner is....

None other than Rick Whittington! Mr. W and his $17-regression-line-based-EPS-extrapolation for Micron back in '97 will stand in infamy as one of the all-time classic analyst outputs.

How soon we forget.

Today's piece, published in the Intelligent Investing (ahem) section of Forbes, ranks right up there! Containing only a couple of numbers Mr. W. makes a bold proclamation about the prospects for semiconductor stocks: "They've now bounced back about 55%, but history suggests another doubling."

Doesn't that sound great? I'm so excited. Should I go ALL IN?

The other number is just about as useful as the first: "This past year, U.S. companies picked up 5% of market share to 53% of global chip output."

Sounds peachy! Although, on second thought.... Some input as to why this happened and who the beneficiaries are might be helpful....

Arming the Forbes reader with these two iron-clad data points, a few clips about the history of semiconductor industry cycles, a less than heartfelt and data-less dart toss toward some minutely positive economic data, some verbal diarrhea about the plethora of uses for semiconductors, the fearless Mr. W concludes his missive by suggesting the purchase of three stocks.

Three stocks that he admits owning.

Allow me to say that I don't have an issue with the fact that semiconductor devices will continue to proliferate. All those things mentioned, the internet, broadband, wireless, media, security and a host of applications we haven't even thought of will drive growth in semiconductor content. Those that are remotely close to the industry, followers, investors and insiders, know all about this. It's going to happen. Clearly Mr. W. is not preaching to this group. This is the kind of stuff you hear in taxis, bars and coffee shops.

What I would like to see in conjunction with the previously mentioned fact is some solid, non-mo-mo, financial justification for owning the stocks. How about some metrics to assess present and future valuations? If one can not provide a suitable set of financial metrics one should, at the very least, qualify the recommendation by admitting that the vast majority of companies in the semiconductor space are beta plays. Invest in them using techniques you use to play video games. Nothing more, nothing less.

In a nutshell, when I read a piece like this it really jerks my bobber. And no, I did not wake up on the wrong side of the bed!

If these deeply profound and pithy observations appeal to your investment senses then by all means click the following link and read the rest of the story:

As for me, I'm personally going to dig a little deeper and do some research on the earnings prospects for the business - right after I give myself a swirly.

Oh! And if you are serious about investing in the sector and interested in getting any of my research feel free to subscribe to my mailing list. Details are here: