Chip Sector Ignores Ominous Predictions

from the blue-chips dept

Fri, Jun 15th 2007 9:49am — Joseph Weisenthal

Earlier this week, the Semiconductor Industry Association dramatically ratcheted down its expectations for the industry, slicing its growth estimates from 10% to 1.8% over the next year.. The problem isn't volume, but price, as exemplified by the brutal price war going on between Intel and AMD. But as Om Malik points out, the bad news on the chip front caused nary a reaction on Wall Street, not even among chip stocks. Obviously, chips aren't the sexiest industry in the tech sector anymore, so it's not surprising that the news didn't make the whole NASDAQ swoon, like it might have in the 90s. Still, it was a bit puzzling that the news didn't even seem to effect the companies directly involved. Om posits that it could be due to the maturity of the industry and the fact that investors no longer see the stocks as swinging wildly depending on where they are in the cycle. It's also possible that the the market was ahead of the curve, already factoring price erosion. Seeing as price wars have been talked about for some time, it seems likely that the SIA is simply late to the story.

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Anonymous, 15 Jun 2007 @ 10:49am

You left out another possibility...the market has once again disconnected from reality and is ignoring all bad news. How else can you explain the market reaching new highs soon after a 0.6% GDP revision and an interest rate surge? Maybe that's why Morgan Stanley is warning it's clients to get out of stocks...the bubble's back.
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- MIke Hansen, 16 Jun 2007 @ 9:25am
  
  Re: Still living in 1987?
  Yo! Anonymous - It's 2007. FACT: most chip growth is coming from outside of North America and Europe. Your lamentations about a 0.6% revision of the US GDP notwithstanding there are approximately 3 billion people not living in the US who don't have a PC today - if only 10% of those folks become cyber-citizens over the next decade that's enough to keep the wind at the back of Intel and AMD. Maybe not boom times - but a pretty decent commodity for a good number of years to come.
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Sean, 15 Jun 2007 @ 1:50pm

Maybe some of the chip stocks aren't worth investi
Seriously, Intel's sales are a little bit above where they were ten years ago. Not really a growth company.
AMD has had a half-way decent rise in sales during the same amount of time, but it's profits and earnings during the same time look like they're tracking a 9.5 on a richter scale the way they jump way up or way down every year.
Maybe investors have figured out that these aren't reliable stocks to invest in.
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andy, 15 Jun 2007 @ 2:32pm

the industry isn't going away
i think the other way to look at it, is that both of the companies (intel, amd), although they're fiercely competitive, are still going to be around for a long time. the semiconductor market isn't going away, it's growth is just slowing. nevertheless, the trend is still a positive one.

unless you're shorting their stock, intel is a good buy. even today, on the day this news came out, my fantasy portfolio shows my biggest gains on intel and i'm not planning to (fictitiously) sell tomorrow. it's a popular stock for many mutual funds because, like microsoft, it's stable and trends upward over the long-term.
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Mike Hansen, 16 Jun 2007 @ 9:13am

PC sales not the dominant driver they once were
The Intel/AMD personal computer segment of the chip business, while being still an important part of the semi industry, has become a commodity. No reasonable industry observer would expect double-digit growth in this commodity simply because a 10% or better year-over-year growth - to use a technical term - is "ginormous". High Def Video on the other hand has become the new driver - it's huge - and using another technical term - getting "huger". Furthermore, the SIA's track record on industry forecasting has been shown to be a cheap source of comedic entertainment.
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Eric Williams, 17 Jun 2007 @ 11:48am

If everyone is still investing...
Who cares if the company doesn't grow much. The stocks keep getting traded... I don't understand this stupid game you all play.
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