Semiconductor ETFs have been on the rebound lately. Here’s a roundup of semiconductor news from the Digitimes web site that illustrates what’s going on in the sector.
Demand is sufficient to allow suppliers to foundries to raise their prices. The article goes on to say that TSMC and UMC have both seen full utilization rates at their 12-inch fabs, thanks to orders for FPGA, GPU, network and wireless applications, according to the sources. Suppliers have kept capacity at recession levels while ramping prices. Pricing power is a good indicator of growth in demand so, from that point of view, this can be considered a positive.
"As iSuppli has been reporting for several months, the recovering economy has brought renewed demand. However, component suppliers have yet to jump in with both feet when it comes to ramping up capacity." These companies are just enjoying increasing margins and enjoying a little pricing power for the first time in a couple of years.
OK, the sequential month-over-month numbers are flat and the lack of improvement is disappointing. But when looking at the book-to-bill ratio from a year-over-year perspective, the improvement is dramatic.And this is from a sector that has been really devastated. When chip demand cratered, equipment sales went down the toilet. The fact that chip manufacturers are finally buying equipment to increase productivity and capacity is a good sign of confidence in future prospects for chip sales.
Motherboard clients of Intel have been increasing orders for chipsets recently, causing chipset shipments to rise to a level 20% higher than processor shipments. This implies PC sales are still on the rise, probably partially due to the Windows 7 upgrade cycle.
The global semiconductor industry will grow by 7% in 2011, and is poised to post a CAGR (compound annual growth rate) of 4.2% during the period from 2011-2014, according to Morris Chang, chairman of Taiwan Semiconductor Manufacturing Company (TSMC), speaking at the recent Global Semiconductor Alliance (GSA) summit.
Considering how the sector was in free-fall a year or so ago, this shows that growth is not a flash in the pan. These expectations for steady improvement contradict calls for a double-dip
Spot prices for mainstream 1Gb DDR2 and same-density DDR3 have recently rallied to approach the US$3 mark, reflecting demand is outstripping supply.
This is yet another indication that demand for chips is robust and even the usually over-supplied and lowly memory chip is allowing memory makers to raise prices for the first time in ages.
How to Play It
I always look to the ETFs in a situation where there seems to be something positive going on across the whole sector. Here are a few for your consideration:
- IGW, the Semiconductor iShares S&P/GSTI Index Fund
- XSD, the SPDR S&P Semiconductor Index ETF
- SMH, Semiconductor Holders
- PSI, PowerShares Dynamic Semiconductors Portfolio
- USD, ProShares Ultra Semiconductor ETF
- This is not time to own semiconductor stocks (Bullish Bankers, 2/23/10)
- I quit my job three years ago today (The Mess That Greenspan Made, 3/1/10)
- Semis have knocked traders' $SOX off, but will head & shoulders roll? (CHARTLINES (tm), 3/15/10)
Disclosure: Author holds a modest position in USD