All joking aside, foundries aka “the place where wafers are magically turned into semiconductors” are seeing factory utilization rates spike, which could indicate a sustainable bottom for the semis. Of course, there is always the chance of a 2001-esque headfake. However, given the extraordinarily low levels of inventory, it is possible that orders will stabilize and start to increase into 2010.
Some of the more bullish forecasts call for a spike, in the range of 10-15%, in semi sales for 2010. Just to put that in perspective, sales for semis dropped by 30% in ’08 and are heading for another 20% drop in ’09.
Nonetheless, two of the biggest foundries, [[TSM]] and [[UMC]], say sales have increased in March, thanks to “substantial new orders.”
At the present, factory utilization rates stand at approximately 70%. During boom times, it is not uncommon for utilization rates to go north of 95%. So, with that in mind, the industry is not exactly breaking out.
Investors are bidding up shares, in anticipation of a bottom. If they are correct, they will make a fortune, since the semis are still very cheap, by historical measures. However, if this is nothing more than a blip on the way to hell, investors of semi stocks will have their balls handed to them on a fucking filthy wafer.
How does one profit from this Godly news?
Well, for one, you need to go up the food chain and start with the foundries themselves, [[TSM]], [[UMC]] and maybe soon to be bankrupt [[CHRT]], for a bounce.
Then, you go long the companies who test and package the wafers, such as [[AMKR]], [[TQNT]], [[SPIL]], [[TER]], [[ASX]], [[ATE]], [[KLIC]], [[UCTT]] and [[RTEC]].
Granted, the majority of the above companies are garbagio; but, they can run with great vigor if the cycle is heading for an upcycle. Back in 2003, I played [[AMKR]] from $2-ish up to $20-ish.
In addition, there is evidence of end user demand strength at [[RFMD]] and [[SWKS]]. And, handset makers, like [[RIMM]] and [[AAPL]], are weathering the depression like true gentlemen, sipping on fine brandy, while the ship sinks.
Finally, another stock to keep an eye on is [[OVTI]]. These are the guys who invented the camera for handheld devices, then watched in horror as Japanese and Korean players ate away at their margins and market share. At any rate, they just landed an iPhone contract. Considering the stock is saddled with a monstrous short position, the shares can run higher, if properly prodded.
NOTE: Gartner research does not think we are near a bottom for the semis. However, they do recognize the stabilization of orders at the foundries and “record low inventories.” In a note of caution, unemployment amongst engineers has risen from 2.8% in ’08 to 4.1% in ’09. As you probably don’t know, due to laziness and/or ineptitude, engineers help create jobs. Their employment statistics are viewed as forward looking indicators for the economy.
NOTE II: A foreign name worth perusing or nibbling at is Sonix Technology, maker of PC cam controllers. As reported by the company, they are enjoying a brisk pick up in sales, thanks in large part to the notebook market.
UPDATE: I sold out of my [[TQNT]] position, north of $3.30.
UPDATE II: I sold out of [[TLAB]] and half of my [[CIEN]] @ $4.50 and $8.22, respectively.
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