Strange Goings on in Semiconductor Markets
Nice week for me on Patriot Scientific. My friend Cal recommended this to me a little while ago at around 20 cents. I watched it double, triple on heavy volume and finally took the plunge when it got to 96 cents only to see it drop back to around 72 the following day. Ended the week at $1.55. The company owns some patents on microprocessors. It got $25mm from licensing to Intel, AMD and HP, then announced a license to Casio and, this last week, to Fujitsu. Classic story stock: there's a lot of microprocessors around these days; if they can get a tiny piece of each one sold... There's probably a hole in the story somewhere, though. The total revenues from INTC, AMD and HWP were $25mm, and that apparently covers sales going back to 1997 or something. When you consider that INTC and AMD between them own pretty much the entire x86 market, $25mm is pretty small potatoes. So how am I going to know when to get out? Have to think about that a bit. Unfortunately, they don't ring a bell at the top.
Meanwhile, a shock to the system when Intel announced yet another revenue shortfall vs previous estimates for Q1. I've been following the OSAT (outsourced chip assembly & test) market a bit after writing up Amkor back last year. Amkor has shot up recently (pat self on back here for calling it after they announced a $30mm buyback of their 9 1/4s). I own the #1 company in the industry, Advanced Semiconductor Engineering. I bought it because I thought the market was underestimating the strength of the chip market going into 2006: both Amkor and ASX had pretty bullish conference calls, each reiterating that it wasn't going to continue cutting the other's throat on pricing. ASX has a much better balance sheet, so I figured they would survive better if I turned out to be wrong. AMKR stock has been much stronger, though, because now nobody thinks they're on the brink of bankruptcy.
But what is going on with the chip market? The OSAT guys rely heavily on the handset (cellphone) market. Also on PCs. Driving also this year, apparently, the videogame console and portable music markets. It looks to me, though, as if the handset market is running out of steam. And PCs aren't that strong, either. Durable goods generally don't look so great. Intel's weakness might be explained by AMD gaining share, but considering AMD has only 20%, roughly, of unit shipments, it would have to be a pretty big shift of market. One analyst (a Mark Edelstone at Morgan Stanley) is upping his estimates on AMD and NSM, and Goldman is apparently expecting TXN to raise its guidance on Monday.
It's often a red flag when one company in an industry appears to be growing while the rest of the industry is having a tough time. I got burned once in disk drives believing that Miniscribe could be doing well while Seagate, Maxtor, Western Digital et al were all hurting: it turned out Miniscribe was shipping bricks. But that's another story.
The point is: who is right about the chip market for 2006? Can other companies really be doing well when Intel is pulling in its horns? Are the OSAT guys shaping up for another horrible plunge of the kind these companies are prone to? Maybe long ASX short AMKR would be a good pair trade? Not for me, because I don't short, but in principle.
Meanwhile, a shock to the system when Intel announced yet another revenue shortfall vs previous estimates for Q1. I've been following the OSAT (outsourced chip assembly & test) market a bit after writing up Amkor back last year. Amkor has shot up recently (pat self on back here for calling it after they announced a $30mm buyback of their 9 1/4s). I own the #1 company in the industry, Advanced Semiconductor Engineering. I bought it because I thought the market was underestimating the strength of the chip market going into 2006: both Amkor and ASX had pretty bullish conference calls, each reiterating that it wasn't going to continue cutting the other's throat on pricing. ASX has a much better balance sheet, so I figured they would survive better if I turned out to be wrong. AMKR stock has been much stronger, though, because now nobody thinks they're on the brink of bankruptcy.
But what is going on with the chip market? The OSAT guys rely heavily on the handset (cellphone) market. Also on PCs. Driving also this year, apparently, the videogame console and portable music markets. It looks to me, though, as if the handset market is running out of steam. And PCs aren't that strong, either. Durable goods generally don't look so great. Intel's weakness might be explained by AMD gaining share, but considering AMD has only 20%, roughly, of unit shipments, it would have to be a pretty big shift of market. One analyst (a Mark Edelstone at Morgan Stanley) is upping his estimates on AMD and NSM, and Goldman is apparently expecting TXN to raise its guidance on Monday.
It's often a red flag when one company in an industry appears to be growing while the rest of the industry is having a tough time. I got burned once in disk drives believing that Miniscribe could be doing well while Seagate, Maxtor, Western Digital et al were all hurting: it turned out Miniscribe was shipping bricks. But that's another story.
The point is: who is right about the chip market for 2006? Can other companies really be doing well when Intel is pulling in its horns? Are the OSAT guys shaping up for another horrible plunge of the kind these companies are prone to? Maybe long ASX short AMKR would be a good pair trade? Not for me, because I don't short, but in principle.
posted by econoclast at 11:04 AM
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