Semi Shortage: Why I'm Waiting It Out

Critical Undersupply in Semiconductors Coming

So sayeth the head of the World Semiconductor Council.

The head of the World Semiconductor Council warned yesterday that recent aggressive capacity cuts in the D-Ram memory chip sector were likely to result in a severe shortage by the end of the year that could disrupt shipments of computers and other electronics.

The global D-Ram sector faced its biggest crisis in its 16 years of existence last year as industry over-expansion coincided with a drop in demand for computers.

But Frank Huang, chairman of the World Semiconductor Council and also of Powerchip, one of the biggest Taiwan D-Ram makers, said the industry would begin to recover by the second half of this year, and downstream producers of PCs and other electronic products would face "a shortage bigger than I have ever seen in the past 16 years . . . this will affect global PC shipments".

I am very, very long semiconductor and semiconductor equipment companies. They are, by far, my largest industry exposure. I own a basket of 17 names, including four I have mentioned as net cash plays.

I began building a position in the chips too early, scaled back a bit, started adding more, and have been buying heavily over the past several months.

I have tended to do best buying companies in industries that have been bombed out. Valuations are extremely low in the semis and some names in my basket could be 5-10 baggers.

Because of extremely low valuations, I care not what happens in the near-term. I am looking 2-4 years out, not 2-4 weeks or 2-4 months. So I sit and wait.

Comments

[Just Say Whoa!:]

Semiconductor companies have always been very cyclical.

Usually they do well when businesses replace lots of computers and servers.

Are businesses really building out their infrastructure at the beginning of a recession/depression?

Mar 31 12:46 PM

[NickH:]

Well, that's a strategy, to sit and wait. Watch the paint dry on the wall. Meanwhile, other people come up with 15 strategies a day, and maybe 5 work and you cut your losses on the other 10. Now if you can't day trade, there are still other things that you can do to make money, even if you try to ride the oil wave back and forth with the DIG and DUG, or the Financials, with the XLF and its reverse ETF. You could write call options against your positions. But just to buy and hold and wait for the next 2 years.........seems to me like you are putting all your chips on one number and hoping the roulette wheel will come up. Pretty big gamble. Alot can happen.

Mar 31 01:16 PM

[tunaman4u2:]

I don't really get the rush to buy tech... I think some big disappointments are pending. Earnings in 2 years HAVE to be better? Why? Companies JUST started to cut back... Consumers will be poorer in 2 years than now with wage freezes but increased healthcare, taxes, food, home heating, gas etc. The way home prices are falling are they going to be HIGHER in 2 years for more people to tap home equity to spend?
I dunno. I'm talking to regular people I see everyday that are getting laid off, taking wage freezes now. This JUST started for middle Americans & will continue... Still a little early. Buy on the economy improving later if it does... we may be surprised like Japan that it just doesn't

Mar 31 06:19 PM

[Moon Kil Woong:]

Hmmm semi's have been burning their Capex cash and killing expansions and upgrades. This is not a sign of health. But at least they were smart and raised cash when the going was good. The bad fact about this is none of them are going under so the ones remaining can feast on their carcasses like the previous downturns.

As for AMAT, it is still too overpriced due to it's solar play which is such a tiny fraction of it's business it's laughable. If solar will bail them out, then that means the semi equipment market has ceased to exist.

Apr 01 06:03 AM

[basehitz:]

I've read a number of your posts. Diversity of opinion uncovers unexpected avenues to explore. However, in your case, it seems every post of yours is bullish. CNBC needs people like you. BTW, I discontinued watching almost all of CNBC programming.

Apr 01 08:29 AM

[wturner145:]

I wonder is the semis are constipated?

Apr 27 12:52 AM