Semiconductors are pulling us out of recession
Posted
Jun 15 2009, 06:05 PM
by
Tobin Smith
Rating:
For two years chips stocks have unequivocally stunk. The industry has been mired in a host of problems, including massive overcapacity and shrinking demand. Not exactly a recipe for stunning returns, but that’s all changing.
Bottom line: The end of the recession is near, and the sector leading the way in this recovery is semiconductors.
All this comes from the just-released ChangeWave Alliance Research Network's June corporate survey.
The survey shows the U.S. economy is stabilizing. And for the second consecutive quarter, semiconductors are not only the leading sector in the survey, but semiconductors also exhibited the most improvement out of all the sectors surveyed.
Semiconductors Typically Lead the way Toward Economic Recovery
To be certain, this is a positive sign not only for semiconductor companies, but also for the overall economy. That's because semiconductors are typically among the earliest sectors to regain momentum after a serious economic downturn.
How can I put so much weight on this survey?
Because it is forward-thinking, and relies on opinions of people who actually work in corporate information technology.
Over one-third (34%) of respondents said their companies' sales will come in above-plan next quarter. This is the highest level we've seen in three years.
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Perhaps more importantly, the 34% figure represents a 29-point surge since the March corporate survey. At the same time, only 18% of respondents said their company will come in below plan, which is an incredible 23 points better than previously.
I don’t remember seeing such a dramatic turnaround happen in a sector so quickly, and if these semiconductor industry guys are right, then stocks in this space are going to be breaking out the champagne very soon.
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Which chip companies will throw the biggest and best parties?
One of my favorites is SanDisk (SNDK), the world's largest supplier of flash memory data storage. Its products are made for a wide variety of electronic systems and digital devices, from cameras to mobile phones.
SanDisk is a real innovator, holding more than 860 U.S. patents and more than 550 foreign patents. It's the only company that has worldwide rights to both manufacture and sell every major flash card format.
I think all the evidence points to a strong summer for SNDK, thanks in large part to Apple (AAPL) orders related to new iPhones and iPods, as well as orders for memory from Sony (SNE) and Nokia (NOK) for new mobile handsets.
One way to invest in the entire semiconductor space without having to choose a particular stock is via the SPDR S&P Semiconductor ETF (XSD), an investment that seeks to replicate the performance of the S&P Semiconductor Select Industry index.
The nice thing about this ETF is you can get a position in the semiconductor industry without trying to pinpoint individual stocks.
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