The Sad Semi Stocks: J.P. Morgan Sees a Bottom

J.P. Morgan analyst Christopher Danely today lowered his estimate for global semi sales in 2009 from a decline of 17% to a decline of 20%, after Wednesday’s report from trade group The Semiconductor Industry association that showed a steeper-than-expected decline in chip sales in November.

The SIA said global chip sales fell to $20.84 billion in November, down 7.2% from the October level of $22.47 billion. But what concerns Danely is the drop of 12.2% from October when excluding memory chips. Danely had been expecting chip sales excluding memory would actually rise 3%. The culprit was not pricing, which held up better than he’d expected, but rather a sharper drop-off of 7.7%, year-over-year, in units sold.

But even with the revised forecast for 2009, Danely, is looking for a trough in the second half of 2009, which is not unlike the recovery others have been calling for:

We expect year-over-year unit growth ex-discretes to go even lower and bottom at 13% during 3Q ’09.

So, if Danely sees a bottom to chips in the third quarter, and the stock market typically anticipates a semi rebound by several months, could bullish sentiment come back to chips regardless of how bad things get before the recovery?

Today, the Philadelphia Semiconductor Index is up 2.66% at 217.81. Decent gains can be seen across most major chip stocks, with Intel (INTC) up 29 cents, or 2%, at $14.95, Advanced Micro Devices (AMD) up 18 cents, or 8.33% (on no news, I might add), Texas Instruments (TXN) up 45 cents, or 2.9%, at $15.97, Analog Devices (ADI) up 36 cents, or 1.9%, at $19.38, and Broadcom (BRCM) up 36 cents, or 2.1%, at $17.33.

Comments

[jepittman:]

You pose a very good question which is essentially when will investors 'look over the valley' and begin buying the semiconductor stocks. I will take a stab at this and say some already have. However they are not yet in numbers large enough to sustain a trend. I have found in the past that most institutional investors need to see convincing evidence that the recession has stopped getting worse before they begin to committ the large sums necessary to sustain an uptrend. In other words the worst case for the industry has to be quantified to a preset probability (which can vary from firm to firm). It usually is not a 'gut call' but something that can be explained using statistical models.

I believe the investors who have moved the prices off the lows have been primarily the 'value' investors who buy based on their perception of intrinsic worth. These people usually are fairly long term oriented and have amazing amounts of patience and ability to endure financial pain because they are often early ( I have had some experience with this particular style, much to my chagrin).

The above is hardly gospel but I offer it FWIW.

Jan 02 05:27 PM

[E Nuff Sed:]

Semi's are among the first sub-sectors to recover from a recession. I see them as bell-weather stocks and will be watching them closely and see if hardware stocks (like Dell etc.) will follow.

Jan 03 01:08 AM

[Short Trade...:]

This is the third time in the last few days I have heard the logic of "things will pick up in the 4th quarter, and the stock market is always ahead of the game, so lets jump in 2nd Quarter." And what was the Dow doing on Oct 9, 2007, three months before we fell into recession? Hit an all time high. I am not convinced about the "all seeing power of the Stock Markets", especially now.

Jan 03 04:10 AM

[notsosmart:]

there might be some shoes still to drop that the market has not anticipated.the anal sts have not been very good over the past 3 years

Jan 03 09:52 AM

[sigmund fraud:]

I would buy TXN here.

Jan 05 11:32 AM