The Market Vectors®Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors US Listed Semiconductor 25 Index (MVSMHTR). The Index is a rules-based index intended to track the overall performance of 25 of the largest U.S. listed, publicly traded semiconductor companies.
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Deutsche's Ross Seymore is the latest analyst to slash estimates for Intel (INTC) ahead of Tuesday's Q2 report. Seymore, citing macro worries, is also cutting estimates for Texas Instruments (TXN) and Broadcom (BRCM). But the cuts are fairly small in scope, and he thinks chip stocks, which have underperformed the S&P this year, are due for a rally. (previous) (AMD warning)
Global chip sales fell 2% Y/Y in May, the SIA estimates. That represents a reversal from April's 3% gain, and is the starkest evidence yet that the chip industry's recovery has stalled thanks to a mixture of soft IT spending and telecom capex, and slumping orders from phone and PC manufacturers. Demand for analog chips (-10%) and microprocessors (-9%) was particularly soft.
Analog and security chipmaker O2Micro (OIIM) falls 11.6% AH after warning it expects Q2 revenue of $27.9M-$28.5M, below a prior guidance range of $30.3M-$31.8M and a consensus of $31M. In a troubling sign for the chip industry, which has seen evidence of a stalled recovery mount, O2Micro attributes the warning to "broad-based weakness in demand."
Among the major ETFs seeing redemptions last week were the Industrial SPDR (XLI), losing 9% of its AUM, the Retail Spider (XRT) losing 6%, and the Vanguard Telecommunication Services (VOX), losing 12%. Among the top ETF creations were Semiconductors (SMH), gaining 31% in AUM, and the Euro (FXE), +21%.
One more datapoint suggesting chip demand is improving: Digitimes reports Taiwanese chip developers have "landed an influx of short lead-time orders" from customers looking to boost their inventories from depressed levels. In a positive for the likes of INTC, AMD, and NVDA, it's added notebook chip suppliers have received customer requests for their inventory levels to be raised to a normal 4-6 weeks. (earlier)
DRAM prices firmed over much of December and January after a massive 2011 crash, and Paulo Santos thinks it wasn't a coincidence that chip stocks in general shot higher last month - DRAM maker Micron (MU) certainly wasn't left out. But the DRAM rally is showing signs of stalling, in tandem with signs of global economic weakness, and he thinks that's a good reason to take profits on chip stocks.
The recent rally in chip equipment stocks (SMH -1.7%) has created significant downside risk for the group, Goldman Sachs writes in cutting ratings for Applied Materials (AMAT -3.6%) and Lam Research (LAM -5.3%). "Record shipments to the foundries and Intel (INTC) will lead to excess supply and a downward trend in orders through mid-2012."
With the firm's PC and mobile phone guidance having been cut, and chip companies slashing guidance left and right, Gartner now sees semiconductor revenues declining 0.1% in 2011, compared with a prior forecast for 5.1% growth. Gartner is also lowering its 2012 growth forecast to 4.6% from 8.6%, and warns macro issues could reduce its outlook further.
IDC expects chip industry sales to grow more than 7% in 2011 to $303B, eclipsing the 5.4% and 4% growth forecasts respectively given by the SIA and Future Horizons. But only 5% growth is seen for 2012, below the SIA's 7.6% forecast, as IDC expects macro issues to take their toll. Communications chip sales are expected to outpace the broader industry.
IBM's (IBM +3.9%) strong results helps lift the Philadelphia Semiconductor Index (SOXX +3.1%) on an outlook for increasing IT spending. Select semiconductor stocks receive an additional boost with Buy ratings from Jefferies: Broadcom (BRCM +4.8%), Marvell (MRVL +2.9%), Texas Instruments (TXN +2.1%).
Jefferies initiates Intel (INTC) with a hold. The firm says Sandy Bridge demand remains solid, but recent data points showing softness in consumer PC demand are concerning. Recently released Gartner and IDC numbers, although strong, aren't nearly enough to drive double digit growth. Shares +0.7% premarket.
Given weak Q2 data, research firm Future Horizons is cutting its 2011 semiconductor growth forecast to 4% - that's down from a prior 6%, and below the Semiconductor Industry Association's 5.4% forecast.
Research firm IHS believes semiconductor inventories rose for the seventh straight quarter, with memory and analog firms posting the largest increases. Last week, chip packaging and testing firm Siliconware Precision Industries (SPIL) talked of higher customer inventory levels.
ASML jumps 2.5% on a valuation upgrade from Merrill, saying the shares are trading between 7-9X earnings, and that's "too cheap to ignore." The stock's down 21% since April, vs. an 11% decline for the Semiconductor ETF: SMH.