Notablecalls summarizes the recent research call from Bank of America. Notablecalls reports that B of A thinks a recent slight uptick in DRAM price has gotten the investors excited about the second half recovery. But it is likely to be attributed to the suppliers' building the inventory ahead of fall season when they anticipate the demand will pick up. The firm actually thinks the demand is weakening across the board for the semi sector. Again, given the high energy price and weakening housing market, I don't know how willing the consumers would be to upgrade all kinds of consumer gadgets in the fall. If this scenario does not pan not, semi market is likely to deteriorate further and semi-equipment shares could see steep selling pressure. I don't like the risk to award ratio here to be aggressive on these names yet.
Here is the comment from notablecalls. (http://notablecalls.blogspot.com...)
Banc of America: DRAM price pop due to inventory build, not supply and demand Banc of America's Semi team notes a sharp rise in DRAM pricing in the last week fueled yesterday's rally in semi-equipment stocks. But the improvement in DRAM prices is likely driven by the accumulation of inventory at suppliers rather than a resolution to the oversupply problem. Day’s sales of DRAM inventory will likely increase across the board when suppliers start to report their June quarter earnings.
June and July are the two weakest months in the year for memory demand. So why are prices increasing if demand is seasonally weak? In the past, DRAM suppliers use this time of year to build inventory and push prices higher. Demand picks up sharply in August. Suppliers want to start the seasonally strong period (August to October) with the best possible backdrop to pricing.
So price increases in June and July have little to do with supply/demand. They think the DRAM industry is in an oversupply situation. Whether or not second half seasonal demand can soak up the excess supply is the critical issue. Recent favorable monthly PC demand is a better argument to support a soft landing in the memory cap-ex cycle than DRAM prices.
Notablecalls: Both AMAT and LRCX blew through my stops yesterday. Yet, it looks like the bounce in DRAM pricing has nothing to do with end demand. Also note that Piper Jaffray is out downgrading NSM, ADI and LLTC (analog space) this morning saying recent industry checks indicate a broad weakening of the semiconductor recovery cycle. Not making any calls here, though.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, June 26, 2007
Friday, June 22, 2007
Still too early to be aggressive semi-equipment names
Recently, semiconductor and semi-equipment stock saw a nice rally. Sox has been lagging the market in the first half of this year. As the market advance has been largely driven by energy, commodity, industrial, and large conglomerate names, semi and semi-equipment names are seeing some catch-up action on the street. Traders are betting that with nice rebound on manufacturing and consumer sector, semi business will see robust second half pick-up. Also new consumer devices such as Apple iPhone may spur growth in the flash memory market and stabilize the price erosion that flash market has seen in recent times.
While tech names in the communication infrastructure area could rebound nicely in the second half, I still have doubt of robust recovery in the second half of this year for semiconductor sector. My contacts in flash memory market continue to tell me about very cautious environment in this segment, even in the second half of this year. DRAM market is in the midst of doldrums. With Vista operating system being the bust, DRAM market may continue to struggle, lacking corporate consumers who are willing to upgrade to the new operating system and new computers. Samsung has recently converted a lot of DRAM capacity into flash memory production. This is not to be interpreted as improving market condition in the flash memory but as extremely bleak DRAM market and cut-throat pricing pressure. Extra flash capacity now will saturate the flash market even more and could further erode the flash memory price.
With overall memory market still in anemic condition at best, I see no reason why Taiwanese, Chinese, and Korean chip foundries will buy any chip equipment in the second half of this year. I have been told that Samsung has depleted large amount of company cash reserve due to brutal memory pricing environment and more aggressive capital investment compared to other companies in Asia in the first half of this year. Consequently, Samsung could substantially tighten its spending belt in the second half.
That is not to say that flash memory market will not improve in the second half of 07. iPhone could be a big hit and we could see reaccelerated flash memory demand. However, given some semi and many semi-equipment stocks such as AMAT, LRCX and KLAC are trading at near 52 week high, earning expectation may turn out to be a little too aggressive. I think it may not be too prudent to jump into these names now. I would wait for one more pullback and would exercise extreme discipline about the entry price to buy these names. In summary, current strength could last. However, I would be a seller into strength and look for better entry point for these names.
I have added some comments from notablecalls about the state of the DRAM market below.
DRAM equipment space: real-time pushouts of tool shipments
Citigroup comments on the DRAM equipment space noting pushouts of future orders now appear to be giving way to real-time pushouts of tool shipments. Checks suggest ProMos - a Taiwan DRAM maker that has recently placed big orders (~30k wsm (wafers/month), or ~$1B+) in 1H:07 - is pushing out delivery on roughly half of these orders. Based on firm's calculations, these pushouts impact total industry tool shipments by ~5-10% in CQ3, putting more pressure on consensus EPS estimates that they feel are as much as ~20-25% too high in 2H:07 and C2008.
While all suppliers are impacted, it appears impact is greatest at AMAT, LRCX - both of which have big Taiwan DRAM exposure.
Citi notes they have been on the road the past few wks speaking with a broad base of investors. The general rhetoric remains cautious - yet incredulous that stocks have remained resilient in the face of "bad news". While there has been a lot of market speculation around capex cuts, there is frankly yet to be much in the public domain regarding pushouts, capex cuts, or the like. Firm thinks it all comes down to the numbers - and equipment stocks are simply not cheap enough to tell them that the buy side's EPS estimates are that much less than the sell side's estimates.
Indeed, major equipment stocks trade at roughly a market multiple off C2008 EPS - hardly discounting a big EPS cut for a cyclical group with a slowing growth profile.
Notablecalls: The DRAM space is a mess. During the past five months, the price of 512Mb has fallen to $1.80 from $5.80 (an almost-70% decline). The DRAM makers are bleeding from their eyeballs and slashing capex should not come as a surprise. Vista continues to be a disaster, so no help coming from there.
Citi's right pointing out the resilience of the semi equipment space in face of bad news. For example, AMAT's has climbed back to the levels where it was before reporting its terrible qtr in mid-May. I have to agree with Citi here - eventually, it all comes down to the numbers.
Sitting at my old desk I would put out a short line in both AMAT and LRCX here. Tight stops just above recent swing highs. Not looking for a home run here. Just some downside.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
While tech names in the communication infrastructure area could rebound nicely in the second half, I still have doubt of robust recovery in the second half of this year for semiconductor sector. My contacts in flash memory market continue to tell me about very cautious environment in this segment, even in the second half of this year. DRAM market is in the midst of doldrums. With Vista operating system being the bust, DRAM market may continue to struggle, lacking corporate consumers who are willing to upgrade to the new operating system and new computers. Samsung has recently converted a lot of DRAM capacity into flash memory production. This is not to be interpreted as improving market condition in the flash memory but as extremely bleak DRAM market and cut-throat pricing pressure. Extra flash capacity now will saturate the flash market even more and could further erode the flash memory price.
With overall memory market still in anemic condition at best, I see no reason why Taiwanese, Chinese, and Korean chip foundries will buy any chip equipment in the second half of this year. I have been told that Samsung has depleted large amount of company cash reserve due to brutal memory pricing environment and more aggressive capital investment compared to other companies in Asia in the first half of this year. Consequently, Samsung could substantially tighten its spending belt in the second half.
That is not to say that flash memory market will not improve in the second half of 07. iPhone could be a big hit and we could see reaccelerated flash memory demand. However, given some semi and many semi-equipment stocks such as AMAT, LRCX and KLAC are trading at near 52 week high, earning expectation may turn out to be a little too aggressive. I think it may not be too prudent to jump into these names now. I would wait for one more pullback and would exercise extreme discipline about the entry price to buy these names. In summary, current strength could last. However, I would be a seller into strength and look for better entry point for these names.
I have added some comments from notablecalls about the state of the DRAM market below.
DRAM equipment space: real-time pushouts of tool shipments
Citigroup comments on the DRAM equipment space noting pushouts of future orders now appear to be giving way to real-time pushouts of tool shipments. Checks suggest ProMos - a Taiwan DRAM maker that has recently placed big orders (~30k wsm (wafers/month), or ~$1B+) in 1H:07 - is pushing out delivery on roughly half of these orders. Based on firm's calculations, these pushouts impact total industry tool shipments by ~5-10% in CQ3, putting more pressure on consensus EPS estimates that they feel are as much as ~20-25% too high in 2H:07 and C2008.
While all suppliers are impacted, it appears impact is greatest at AMAT, LRCX - both of which have big Taiwan DRAM exposure.
Citi notes they have been on the road the past few wks speaking with a broad base of investors. The general rhetoric remains cautious - yet incredulous that stocks have remained resilient in the face of "bad news". While there has been a lot of market speculation around capex cuts, there is frankly yet to be much in the public domain regarding pushouts, capex cuts, or the like. Firm thinks it all comes down to the numbers - and equipment stocks are simply not cheap enough to tell them that the buy side's EPS estimates are that much less than the sell side's estimates.
Indeed, major equipment stocks trade at roughly a market multiple off C2008 EPS - hardly discounting a big EPS cut for a cyclical group with a slowing growth profile.
Notablecalls: The DRAM space is a mess. During the past five months, the price of 512Mb has fallen to $1.80 from $5.80 (an almost-70% decline). The DRAM makers are bleeding from their eyeballs and slashing capex should not come as a surprise. Vista continues to be a disaster, so no help coming from there.
Citi's right pointing out the resilience of the semi equipment space in face of bad news. For example, AMAT's has climbed back to the levels where it was before reporting its terrible qtr in mid-May. I have to agree with Citi here - eventually, it all comes down to the numbers.
Sitting at my old desk I would put out a short line in both AMAT and LRCX here. Tight stops just above recent swing highs. Not looking for a home run here. Just some downside.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Thursday, June 07, 2007
FilthyRich hive communication - 06/07/06
Last three days saw the market retreating as the fears of the higher interest rate is pressuring many traders to lock in their huge gain. Given the huge run-up that most of the major indices were able to achieve year to date, this selling is not surprising. Recent spike in the put to call ratio also point to the fact that traders are getting very nervous about the recent market advance and willing to protect against possible market fall.
Despite temporary weakness that may last until the next earning season, I remain bullish about the market outlook in 07. I believe that although the rate cut is now being kicked out of most investor' expectation and the market premium associated with the rate cut could evaporate, forcing the market consolidate for next a few weeks, long term fundamentals continue to remain solid for the US economy. Earning picture for many US companies will remain rosy due to moderately growing US economy and hot economies in the emerging market. As such, I continue to feel that this selling will be short-lived and investors should use this as a buying opportunity, not an event to liquidate their position.
US economy outlined by benign unemployment picture, reasonable wage growth, as well as decent ISM service number is showing no signs of entering into recession. Although the consumers are pinched with higher energy prices, they are not drastically curbing their spending habits. If the housing and a few other sectors such as auto are not in doldrums, the growth of the economy could be too hot, forcing Fed to adopt more aggressive rate tightening measures. However, these lagging sectors are offsetting the growth in the other sectors and keeping the inflationary pressure largely in check. This continues to support bullish scenario and although there will be no rate cut for a while, I believe Fed will stay on the sideline for the remaining of this year.
In the first half of this year, the market was led by energy, commodity, industrial, as well as defense industries. Although the indices advances a lot, if you were in the sectors like airline, financials, housing, auto, as well as healthcare that lagged the market, your gain may have been limited as these sector lagged the market. Due to uncertainty in the direction of the interest rate and economy, investors are hesitant on placing their bets on the interest sensitive sectors such as financials and housing. Rather, they are putting their bets on what has been working in the past: energy, industrials, commodity, and emerging market. Direction of the consumer sentiment is largely in debate. As such, the retail names and tech names with consumer exposure has been relatively weak overall.
I believe when the market resumes advances after a brief period of consolidation, the leadership group may change. Second half of the year is usually great times for tech in the economy that is expanding. While techs have been weak upto this point, they may come alive in the second half. Energy stocks have done great due to record level crack spread between the crude and refined oil. They also account for many of the political and weather related uncertainties. Heading into summer driving season and hurricane season, energy traders are betting the oil to shoot higher. As we exit summer driving season and hurricane period, I see oil price trading lower from current level in high 60's.
Also interest rate is continuing to rise in the emerging and many of the European nations, this will control economic expansion, keeping a lid on the oil demand. Also because the market is now adjusting to the higher rate scenario, mortgage rate will go even higher and home sales in the US will remain anemic. Housing downturn is here to stay for a while. These factors could ultimately weigh on the oil demand and after the season where the gasoline demand is the highest during this summer, the oil price could head lower. The money could rotate of energy and may find places in battered down techs, biotechs as well as some financial names. Also should the oil price fall, airline could once again see some buying interest.
I continue to see the market is a good shape to make a further gain and I think current volatility in the market is a good opportunity to add to holdings.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Despite temporary weakness that may last until the next earning season, I remain bullish about the market outlook in 07. I believe that although the rate cut is now being kicked out of most investor' expectation and the market premium associated with the rate cut could evaporate, forcing the market consolidate for next a few weeks, long term fundamentals continue to remain solid for the US economy. Earning picture for many US companies will remain rosy due to moderately growing US economy and hot economies in the emerging market. As such, I continue to feel that this selling will be short-lived and investors should use this as a buying opportunity, not an event to liquidate their position.
US economy outlined by benign unemployment picture, reasonable wage growth, as well as decent ISM service number is showing no signs of entering into recession. Although the consumers are pinched with higher energy prices, they are not drastically curbing their spending habits. If the housing and a few other sectors such as auto are not in doldrums, the growth of the economy could be too hot, forcing Fed to adopt more aggressive rate tightening measures. However, these lagging sectors are offsetting the growth in the other sectors and keeping the inflationary pressure largely in check. This continues to support bullish scenario and although there will be no rate cut for a while, I believe Fed will stay on the sideline for the remaining of this year.
In the first half of this year, the market was led by energy, commodity, industrial, as well as defense industries. Although the indices advances a lot, if you were in the sectors like airline, financials, housing, auto, as well as healthcare that lagged the market, your gain may have been limited as these sector lagged the market. Due to uncertainty in the direction of the interest rate and economy, investors are hesitant on placing their bets on the interest sensitive sectors such as financials and housing. Rather, they are putting their bets on what has been working in the past: energy, industrials, commodity, and emerging market. Direction of the consumer sentiment is largely in debate. As such, the retail names and tech names with consumer exposure has been relatively weak overall.
I believe when the market resumes advances after a brief period of consolidation, the leadership group may change. Second half of the year is usually great times for tech in the economy that is expanding. While techs have been weak upto this point, they may come alive in the second half. Energy stocks have done great due to record level crack spread between the crude and refined oil. They also account for many of the political and weather related uncertainties. Heading into summer driving season and hurricane season, energy traders are betting the oil to shoot higher. As we exit summer driving season and hurricane period, I see oil price trading lower from current level in high 60's.
Also interest rate is continuing to rise in the emerging and many of the European nations, this will control economic expansion, keeping a lid on the oil demand. Also because the market is now adjusting to the higher rate scenario, mortgage rate will go even higher and home sales in the US will remain anemic. Housing downturn is here to stay for a while. These factors could ultimately weigh on the oil demand and after the season where the gasoline demand is the highest during this summer, the oil price could head lower. The money could rotate of energy and may find places in battered down techs, biotechs as well as some financial names. Also should the oil price fall, airline could once again see some buying interest.
I continue to see the market is a good shape to make a further gain and I think current volatility in the market is a good opportunity to add to holdings.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
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