Reasons to Be Optimistic in the Tech Sector (MU, INTC, AMD, DELL, AAPL, ATML, MCHP, QCOM, MRVL, CAVM, EZCH, NETL)
The lingering impact of the March earthquake and tsunamis in Japan, economic and legislative uncertainties in the United States and Europe, and the cyclical impact of DRAM pricing combined to push July semiconductor revenue down 1.1% year-over-year according to the latest Semiconductor Industry Association (SIA) report. Next Inning Technology Research Editor, Paul McWilliams, warned readers this would be the case six weeks ago and that until we get clarity from Washington, investors should expect a highly volatile market and declining prices.
However, with Japan showing signs of moving from the recovery to the rebuilding phase and deeper analysis of the detailed data, McWilliams, whose Next Inning model portfolio has returned 228%, notes that there are reasons to be more optimistic than current market prices suggest. For example, if you remove DRAM data from the SIA numbers, worldwide semiconductor revenue actually increased year-over-year driven mostly by a solid double-digit gain in microprocessor revenue.
McWilliams warned Next Inning readers in July about falling DRAM prices and suggested it was time to sell shares of Micron Technology (MU) at its then current price of $7.95, but maintains investors should hold a bullish long-term view of Intel (INTC). Citing news that Advanced Micro Devices (AMD) has finally hired a permanent CEO and is now building traction with not only its Fusion strategy, but also in the server sector with a new impressive design with Dell (DELL), McWilliams stated there was also reason to speculate its price will recover substantially by year-end and may set a new 52-week high.
While McWilliams warned readers that Samsung’s patent suit losses in its battle with Apple (AAPL) will clearly dampen its shipments of smartphones and tablets and that will negatively impact touch screen IC supplier, Atmel (ATML), he thinks Atmel has been over-sold and merits consideration as a “bookend” speculative investment in the microcontroller sector. The other bookend for that sector would be a strategic investment in Microchip Technology (MCHP), which is now paying a dividend above 4% and has plenty of cash to sustain it even if demand softens from here.
With smartphone sales still booming and demand for new low-cost models poised to surge in China, McWilliams thinks book-ending that sector makes sense too. There he sees Qualcomm (QCOM) as the high-end leader and a good strategic long-term investment to pair with Marvell Technology (MRVL) to bookend the speculative side of the equation. Little known to many U.S. investors is the fact that there are nearly 20 new low cost smartphone designs with Marvell inside that will be sold in China for an unsubsidized price of only $100. McWilliams thinks the $100 entry point will mark a tipping point for the Chinese smartphone market, which heretofore has been little more than a rounding error in the worldwide smartphone equation.
Beyond the “brand name” tech stocks that everyone recognizes, McWilliams says there are some emerging companies that will likely do well because they have new designs entering production. These include names like Cavium (CAVM), EZChip Semiconductor (EZCH) and NetLogic Microsystems (NETL).
As is always the case with McWilliams, there is much more to this story. To read McWilliams’ full report on recent semiconductor activity and trends, and additional thoughts about future macroeconomic trends and investing in tech sector companies, please
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