Semiconductor Capital Equipment Stocks Discussion: Semis a Safe Haven?

» JenL_2 - Semis a Safe Haven?

This from 4/21 TSC:

Chips Ahoy! Semis a Safe Haven in Stormy Seas

By Marcy Burstiner

(excerpts)

In a turbulent economy, chips can be a safe haven. Year to date, the Philadelphia Semiconductor Index has risen about 44%, compared with the Nasdaq's near 9% drop. But these stocks are by no means immune to stormy weather. Since March 10, as the Nasdaq fell some 27%, the SOX had its own 22% drop.....

.....In the old days, chip investors didn't worry much about the larger economy. Semiconductor stocks were ruled by supply. Demand stayed fairly constant, and prices rose as supplies tightened when companies ran out of room in their manufacturing plants. Companies would frantically build more, supplies would rise, and prices collapse -- and so would the stocks.

In those days, chips went into one basic thing -- computers. Now, however, they are in just about everything: phones, cars, light switches, toys. And if there is an economic slowdown, consumers and companies might stop spending on these new products. The mere fear that that could happen could spur the makers of some products to stop ordering chips. That's what worries SG Cowen analyst Drew Peck. "The spigots would get turned off and orders would turn down to zero," he says......

.....it would take a prolonged and widespread economic downturn to affect companies that make chips for Internet infrastructure. That's because telephone and cable companies are rolling out digital subscriber lines and cable modem networks now, and these companies are well-funded and don't have to depend on continuing money flow from venture capitalists....

...."Only if the markets really got hammered in a terrible way, then you might see some slowing,"....

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.....Jen

-- posted by JenL_2