Semiconductor Fundamentals Likely to Bottom Soon – We Hope

By William Trent, CFA of Stock Market Beat

As we anticipated, the latest semiconductor sales report suggests that supply and demand imbalances will no longer worsen, as it now seems likely that within a month or two orders for new semiconductor equipment will cease growing faster than can be supported by end demand. A few months after that, the inventory problem should start to clear up.

That is, of course, assuming end demand stays strong. Semiconductor Industry Association President George Scalise issued some unusual cautionary words:

Scalise noted that as individual consumers drive an increasing proportion of worldwide semiconductor sales, the industry is more susceptible to fluctuations in overall economic conditions. “There are signs of slower overall economic growth and a slowing economy could impact sales of semiconductors in the coming months,” Scalise said.

Usually Scalise is (from our perspective) hopelessly upbeat. We have thrown water on his comments here, here and here. So we aren’t quite sure to make of his sudden case of the willies. It could be a contrary indicator and mean things are finally turning around. Or he could be as upbeat as normal, which would mean things are really bad. 

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion’s Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Lion’s Gate (LGF) call options; Dell (DELL) put options; Plantronics (PLT) put options;

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