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Saturday, July 05, 2003 1:48:54 PM
Semiconductors: Sales Set To Explode Higher?
2003-06-30 08:15:00
Output and capacity growth in the broad tech sector had converged, potentially providing some relief to downward pressure on pricing power. This should be supportive of tech stocks, despite frothy valuations. In addition, the Fed’s rate cut has further widened the interest rate gap between it and the rest of the G7 (excluding Japan), suggesting the latter will become increasingly inclined to cut rates to offset the drag from strengthening currencies. This, in turn, should provide a positive jolt to semiconductor demand. The momentum in global short-term interest rates (shown inverted and advanced) has led the trend in global chip sales for the last several cycles, and the current message is that a turnaround looms. The magnitude of the potential rebound could be impressive, if global central banks ease more aggressively. We are neutral on this index, despite very unattractive valuations, because there are good odds that profit estimates will be revised up in the coming quarters. An upgrade to overweight is a risky bet and we are uncertain whether we will take this step, but more aggressive traders may wish to position for a trading rally.
2003-06-30 08:15:00
Output and capacity growth in the broad tech sector had converged, potentially providing some relief to downward pressure on pricing power. This should be supportive of tech stocks, despite frothy valuations. In addition, the Fed’s rate cut has further widened the interest rate gap between it and the rest of the G7 (excluding Japan), suggesting the latter will become increasingly inclined to cut rates to offset the drag from strengthening currencies. This, in turn, should provide a positive jolt to semiconductor demand. The momentum in global short-term interest rates (shown inverted and advanced) has led the trend in global chip sales for the last several cycles, and the current message is that a turnaround looms. The magnitude of the potential rebound could be impressive, if global central banks ease more aggressively. We are neutral on this index, despite very unattractive valuations, because there are good odds that profit estimates will be revised up in the coming quarters. An upgrade to overweight is a risky bet and we are uncertain whether we will take this step, but more aggressive traders may wish to position for a trading rally.
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