We all see what’s going on, don’t we? Semiconductor names are blowing away estimates, thanks to inventory adjustments/end user pick-up. Instead of giving you food to eat, I will attempt to teach you how to hunt for yourselves. Understanding how cycles work is imperative, when buying the chips. For most people, including most money managers, going with a diversified ETF or just Intel Corporation [[INTC]] is the preferred course of action. However, if you are adventurous and want to play the sector like a fucking musician playing chop sticks, listen to me very quietly.
Here is how the semiconductor foodchain works:
MEMC Electronic Materials, Inc. [[WFR]] produces silicon wafers
Applied Materials, Inc. [[AMAT]] , KLA-Tencor Corporation [[KLAC]] , Lam Research Corporation [[LRCX]] , Novellus Systems, Inc. [[NVLS]] , Varian Semiconductor [[VSEA]] produce front end equipment.
Teradyne, Inc. [[TER]] , Verigy Ltd. [[VRGY]] test the wafers.
Amkor Technology, Inc. [[AMKR]] , Advanced Semiconductor Engineering (ADR) [[ASX]] , [[SPIL]] and Entegris, Inc. [[ENTG]] assemble and package.
[[SMI]] , [[CHRT]] , Intel Corporation [[INTC]] , Micron Technology, Inc. [[MU]] , Taiwan Semiconductor Mfg. Co. Ltd. (ADR) [[TSM]] and United Microelectronics Corp (ADR) [[UMC]] produce the chips.
QUALCOMM, Inc. [[QCOM]] , Tessera Technologies, Inc. [[TSRA]] , CEVA, Inc. [[CEVA]] , Rambus Inc. [[RMBS]] license intellectual property to chip makers and collect egregious royalties.
Naturally, there are other minor players that compete with the above companies and other foreign names, like Hynix and Samsung, that are major players. But, for the most part, that is the food chain. Other names, like Advanced Energy Industries, Inc. [[AEIS]] and MKS Instruments, Inc. [[MKSI]] leverage themselves off the front end and can produce exceptional returns during semiconductor renaissance periods. And, companies like Rudolph Technologies, Inc. [[RTEC]] (yield management), Cymer, Inc. [[CYMI]] (laser light source supplier) and Kulicke and Soffa Industries Inc. [[KLIC]] (copper wire bonding), [[ATE]] (sells the machines that test the wafers) supply vital parts to the food chain, giving keen investors early hints to cycle booms and busts. My point: when the food chain is busy and the foundries are ramping up production, like they are now, you can make reasonable gambles that end user sensitive semi’s, like Broadcom Corporation [[BRCM]] , Texas Instruments Incorporated [[TXN]] , Marvell Technology Group Ltd. [[MRVL]] , Diodes Incorporated [[DIOD]] , NVIDIA Corporation [[NVDA]] and Atheros Communications, Inc. [[ATHR]] , will blow the barnyard door off earnings estimates.
If you want to get a feel for how the semiconductor industry is doing, start by studying the food chain, then work your way down to names like RF Micro Devices, Inc. [[RFMD]] and Skyworks Solutions, Inc. [[SWKS]] later. This is the basic premise behind studying any industry, whether it be oil, ag, telecom or chips; there is always a food chain worth examining and exploiting.
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great post FLY!
oh yeah those PPT adverts make me wee my pants.
Fly,
That was an excellent post that should be helpful to many.
Thank you for the time and effort you put into it.
Thanks for that info, excellent post.
sure thing
AMD left off for a reason?
Besides “hatred” I mean?
___
Solid picks Fly.
now and again I remember why I read this blog
I like the food chain concept. Thanks.
wow. Thanks. And here I was thinking you were just another pretty face.
Fine post, that. Mr.Fly.
Wow, Tim Knight just came out with a real rant of a thread.
Summarized version.
1. He was the smartest kid in the class all through school.. (of course).
2. He published numerous books starting with the first one in his teens
3. He owned a business but it was burned down by competitor.. (of course)
4. HE started it up again and made some money
5. Last year he made 180 and 200% in two trading accounts and is writing a book about it.
After he told people how fantastic he is, he proceeded to tell people that he’s absolutely resilient and that the crooked friends in Washington and Goldman Sachs are the only reasons for this rally and that in the end he’ll be right.
Here’s the thing, if he claims he’s so fucking smart why is he suggesting Goldman Sachs’ dark hand like the black hand of the mafia in taking the market up? This sort of shit simply belongs in “troofer” blogs not real serious blogs that pretend to understand markets.
He also claims that people are making fun of technical analysis suggesting TA is a crock. I don’t know about other people but I have certainly made fun of him using technical analysis because he’s using lines drawn on a chart to somehow suggest some deep insight into the market. In fact all he’s doing is trying to pretend there is some insight but it’s simply a prejudice he has.
Case in point. He recently gave a recommendation to sell Goldman Sachs stock at $151 after the announcement as a short- term line he drew suggested to him that it was a top that could be sold. Bullshit, if it broke those levels it should be bought. The risk in this market at the moment is to the upside, not down.
He suggests he has resilience – lots of it- while ignoring the resilience the Goldman Sachs management has faced through the storm. Lol.
Here’s the thing he doesn’t want to seem to understand. Trading is about understanding all sorts of things and having the ability to put your ear to the ground and hear the rumbling from a distance. It’s about all those things I talked about the other day. It’s about understanding macro, microeconomics. It’s about understanding finance and understanding people psychology. Once you have all those it’s worth taking a look at charts at times to see what price behavior is doing through a pictorial display.
I use charts to help me figure out a trend through simply moving averages. I also use a chart to tell me what’s happened in particular periods that I think resemble the present. I think for instance that the present time feels a bit like a hybrid between the recession of the early 90’s and the aftermath of 911. The Fed’s monetary expansion is huge and in fact the global reaction to the crisis both, fiscally and monetarily, is enormous. In fact it’s unprecedented, so we can’t simply say the economy will head back into a deep recessions we don’t really know the answer to that. Tim Knight thinks he does, which he explains away by suggesting the crooks in Washington and Goldman Sachs are responsible for the rally.
Goldman Sachs makes money because they are good at what they do and they hire really smart people. High IQ pays off as Google does and Microsoft used to show.
Shit like that makes me think Tim ought to align himself with troofer blogs that doubt the moon landings and think the government was responsible for 911.
TA is for retarded people.
J…when do you begin blowing each Goldman employee…how many a day are you ready to service..you gay goldman retard..?
Cash,
go fuck yourself. It’s not about Goldman you moron, it’s about saying stupid things.
1. Lines on a chart don’t represent ‘some deep insight into the market’. They represent supply and demand.
2. Trading has nothing to do with macroeconomics.
3. You don’t need to understand finance to be a great trader.
4. There are no consistent trading systems based on simple moving averages.
5. If you think GS made so much money this quarter solely because they’re * really smart* you’re naive.
It looks like you put a lot of work and time in your post so I wanted to give you some feedback.
1. They seem to to some people.
2. Macro has a huge amount to do with swings in the economy and you really need to understand those things, particularly like Fed policy. It does matter.
3. No, you don’t need to understand a great deal of finance, however you do need to understand a research report and what it means
4. Who mentioned trading systems. I use ma to remind me of the long term trend.
5.GS made money because they didn’t have write downs and they are smart as evidenced they stayed out of a lot of trouble , traded the markets well. They also stuck to their business plan when people were telling them to get out of trading.
To back Sleestak on one thing: GS didn’t have writedowns because they strongarmed the gubmint (which, let’s face it, they have inordinate leverage over) into keeping AIG alive long enough to effect massive transfer payments on questionable contracts at 100 cents on the dollar.
That much is “troof.”
___________
bottomline: Tim Knight made more money than you last year.
Jealous bitch.
Not jealous in the least. Never have been jealous of anyone, you moron. In fact I never mentioned anything derogatory about how he went last year. However judging from his performance this year and the reasons why he has done well I’m actually not surprised he did make those results last year. I really don’t think he knows what the fuck he’s doing.
Anyone who says Goldman is gaming the system/conspiracy hasn’t got a fucking clue.
” Anyone who says Goldman is gaming the system/conspiracy hasn’t got a fucking clue.”
You’ve got alot to learn Son.
Now, take off those Fuckn’ Blinders !!
Indeed!
With the market down today I’m sure Tim has his staff punching out orders for FAZ / DUG / SRS etc. like a baboon masturbating to the banana channel.
He will make up all his losses in one day. Or that will be the plan anyway.
j, Goldman gets a 30 millisecond peek at the orders before most other brokers. Their servers are co-located with the exchange servers.
The volume from Goldman is 50% of NYSE volume.
They get an approximate .0025 rebate for making liquidity.
So…..you see before other brokerages the orders, and you can get there first with the limit, and collect your rebate.
This is the tip of the iceberg and does not begin to touch the predatory algorithms which attempt to drive up prices while funds are accumulating.
Seriously 50% of the volume on the NYSE, and you don’t think there is the slightest chance that they are gaming the system?
So buy GS, then Wood, right?
________
That’s kind of what I’m thinking Jake.
My only mis-givings are that there is a lot of buzz right now about their practices, and if there were some regulation coming down the pike, their stock would get killed.
This is literally a 100,000,000/day operation for them. Seriously. This is where the bulk of their trading profits are coming from.
Also, it won’t be long before their competitors catch up…assuming the exchanges keep whoring their server space out for expensive fees.
Although right now Goldman is the ONLY broker with Supplemental Liquidity Provider status for the NYSE. They may just have the whole game locked up for good.
j – Great comment. You really should post this stuff in the PG. Really.
For the j haters, you show your ignorance of the ecosystem you trade in by disparaging analysis of the macro environment. It’s really simple. It’s NOT simplistic. Trade as you like. Someone better will take your money.
BTW, Tim is on the wrong side of the market and his hubris will destroy his trading account. I don’t care how much money he as made. That’s not the point. He was complaining the other day that he’s been down since February. That should tell you something.
Simple rule for the simple among us (yes it’s a “macro rule”): You can be long and wrong and the market will eventually bail you out (due to the growth of the economy). Not so with being short. You will be crushed.
Tim Knight got ineffably crushed all through 2007 to peals of bullish laughter. He did okay last year because he was finally right.
That doesn’t mean being a perma bear is a smart strategy. (neither is permabull for that matter).
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Great post J
Waited until now to get short. Who, in particular, is your daddy, little boy?
Who helps you with the spam addition? I do wish they would stop it.
Fly,
What the hell are you talking about? Useless non-money making dribble again.
Very well thought out.
Now, Monsieur ‘Fly’, whom assembles all that purty technology?
Someone/s got to build’em, no?
Th*nk CEM’s!!
Indeed!
Like Jabil?
_______
Indeed. As well as others Mr. Jake.
BTW, you’re doing a Kick-Ass job with the Jeffersonian’s. A pleasure to read, daily!!
You have all the ingredients to Mix the cake, yet, if you do not bake it, you have nothing to eat, capice?
many new gay asshats here…truly uninspiring reparte…fucking shit
We need some MCC jibes, Cash.
______
http://www.chartoftheday.com/20090724.htm?A
WTF
KC, obviously, the computers who are bidding up this market could care less about that chart.
New Banking motto for 2009 ….”EXTEND AND PRETEND”
Damn Fly…..Don’t educate these fools too much… Of course it looks like you have explained just enough stuff for the average reader to eventually blow themselves up. Nothing about Fab vs. Fabless, nothing about the PLDs, Nothing about transitions in wafer size vs. die size.
Sending the email to you the other day with the gravatar I made for you, I see only today that it has come back to me as “returned mail, delivery problems encountered”
so I take it you never got the email.
[email protected]
I assist, because I am curious as to why the “Indeuuuud” cigar smoker is not being featured.
_______
o.k. just sent them again Fly….. I made 3, so if you like any of them, use one.
you’re welcome.
MSFT is currently experiencing a “long” squeeze……
don’t you know..
Good time to pick some up.
___
AMD
Ooops.
Fly, Great post. Thanks. This is the type of thing that makes this place so great and has helped me clean up my game.
Do not taunt us. You will speak when spoken to.
Today you are going to feel the wrath of God’s own thunder.
Bitch.
Very nice, Meat Head!
Now, explain all you can about TIMING, then come back here and tell me what you found out!
Timing:
1) setting watch to correct “time of day” so as to correspond to the actual current time in said time zone.
2) setting cam so as to correspond to correct valve/piston position for correct valve to TDC correlation.
Thank God I covered EMN. It exploded almost 5% in after market after being up massively from where I covered. That would have been quite painful.
This feels like it could be another melt up day. This shit is amazing. The trend seems to be almost one way, It’s not so much of a panic but a realization of an enormous repricing and adjustment taking place.
j, the enormous repricing and adjustment is a short squeeze, imho, coupled with the fact that analysts had estimates too low, based on a previous Armageddon quarter.
Almost all earnings report I’ve read, and that is quite a few, companies were able to beat estimate because they fired people.
Now, should the consumer step back up to the plate this quarter, maybe the companies can pull out a decent 3rd qtr. I just do not see consumer spending increasing, anytime soon.
Therefore, what is to keep Q3 from being pretty awful? And I’m asking truly because I like to hear your opinion on things j, not trying to argue.
easy, fire more people……(lol)
Hi Shed.
no don’t think you’re arguing
Yep it is a short squeeze. However it’s also what i think is complete reassessment of where we were to where we’re heading.
Recall the famous ” you bulls are dead” from Fly in late dec early January after the big rally in Feb.?
The fall in the early part of the year were several things.
1. Banks were fucked, like totally fucked and were going to be nationalized.
2 The economy’s rate of decline as fast as the decline in the 30’s
4. Obama introducing leftwing policies.
You could add some more but that about sums it up.
What have we ended up with.
1. Banks are not going to be nationalized and in fact they have been recapped and will limp along (a few of them) while other will break out.
2. the economy’s rate of demise is slowing and US as well as global PMI and leading indicators are moving up.
3. Obama looks fucked and has had his wings clipped and his policies … the big ones look crippled.
The repricing and readjustment that’s occurring is about that. Add in the fact that we have oceans of liquidity swirling around the globe like nothing we’ve ever seen before and what do you end up with? This is a readjustment and repricing.
I dig j.
My only disagreement is that I think in 3 more months we’ll see the LEIs begin to head down again.
And that is not really a disagreement, I guess.
Shed:
It could, however the ratio of co-incident to lagging indicators is what I have been looking at for over a decade and it gives you a better pic as it’s longer term in possible direction and that been up for two months now. That one takes a long time to turn and when it does it means something. It’s been going down since late 2006 ish. Now it’s tuned up.
Also the economy is adjusting to a higher savings rate and a higher savings rate is a good thing.
All bets are off if Europe’s banks head south though as that is in the game and it’s not a zero probability.
j, where do I find such ratios of co-incident to lagging? You can email me if you want.
Thanks.
Added to ENTR 3.05
Thank you morning seller. You were kind to me yesterday — looking for the same today…
Did you get far enough down the Semi Chain to DVAX.
They’re a Biotech company that I’m quite sure utilize semiconductors to create vaccines!
DVAX 1.80 this puppy’s for real I think. Volume is continuing to confirm move.
Whattabout SVA, Henry?
Also, thanks again for IMGN… still holding.
____
Where the hell is everyone?????
Fly, this will be a short lived up cycle in Semi.
Thanks Fly… you da man….”HELLLLPPPP MEEEEE”
J states : “Also the economy is adjusting to a higher savings rate and a higher savings rate is a good thing.”
This statement is nonsense. If people leveraged or borrowed too much that is debt that they have to pay off by not spending on discretionary items. So paying down debt is not savings.
Deleveraging has similar effects though, if — and only if — credit is still available to those paying down debt.
Call me nuts, but I think paying down debt now is nuts. There’s only one way the Fed digs us out of this hole. I can hear the printers clacking now.
_______
Jake, no way this problem gets solved by the consumer taking on more debt.
The gov’t MIGHT be able to print their way out, but that just pushes the day of reckoning out another few years.
Plainly, there is absolutely no way that debt expansion can continue exponentially without a full-scale meltdown of the entire system.
I am not talking about debt today, Shed. I am talking about the availability of credit in future. IOW, paying down debt is equivalent to “savings” if you consider that:
1) It’s a cutoff of negative cash flow (ie, interest)
2) That supply of credit is still available in future, after debt is paid down (again, in future).
IOW — “credit” has become a quasi-“savings” account to the now debtless. I’m afraid its come to that.
________
I’m with Shed on this one. The only thing happening right now in the macro sense of our economy is we are witnessing the creation of MOAB….aka Mother Of All Bubbles. When she pops we (the USA) are done..dust in the wind.
the ones printing money or the ones printing unemployment checks?
LOL….
Should one wait for a pull back in the nasdaq and or certain key semi conductor stocks before going long?