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Thread: Semiconductors Week in Review: Samsung, TSMC, AMAT, KLAC, ASML

  1. #1
    Admin Daniel Nenni's Avatar
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    Semiconductors Week in Review: Samsung, TSMC, AMAT, KLAC, ASML

    Samsung & TSM crushed- Chip cycle conclusion? First Domino or fake news?
    Samsung's stock was down in the Korean market by roughly 5% which took the entire Korean index down 1.4% based on a downgrade by Morgan Stanley to equal weight. TSM was also downgraded and down 2.5% in the same report. Weakening memory was cited as the reason for the downgrade along with a reduced outlook.

    We certainly agree that memory has slowed but the real question is whether or not this is a cycle peak after a long run or a seasonal pause on a long secular uptrend.

    The sharp drop on one soft analyst report underscores our much repeated view that the stocks remain very "twitchy" given the strong gains over the past years. Investors are ready to take profit rather than risk riding the cycle back down. End of year and beginning of next year has historically been a weak season for chips as we are past peak holiday demand for devices as any devices made from the end of November on, don't make it into stores before holiday season is over.

    So a key question is whether this is the beginning of the end of the cycle or a normal seasonal pattern? Investors need to be aware of the second and third order derivative plays that will be impacted and how we can expect to see fall out...

    Bad day for chip & chip equip stocks - A reset? Is this about valuation gone too far or fundamentals? Twitchy fingers pull the "sell" trigger
    We wrote a note 3 days ago about investor concerns of the cycle rolling over as well as investors twitchy behavior given the gains we have experienced in chip stocks. The first dominoes to fall were Samsung & TSM on Monday as Morgan Stanley wrote a soft downgrade on memory concerns.

    Today we saw essentially what we talked about, played out, in living color, all of it red on my stock screen, as the stocks took a tumble. Not much has changed in reality over the last few days only perception has changed.

    We have to ask if the stocks went too far too fast. Is this a reset of overhyped valuations or the start of a longer negative trendline?

    We also have to remember that perception rules the stock market, less so reality. The other driver of Wall Street is clearly the herd mentality which doesn't care whether the leaders of the herd were scared by a mouse or a real threat like a lion, it only matters that the herd is stampeding in the opposite direction.

    To a large extent we think what we saw today was a bit of an Icarus Effect. In greek mythology, Icarus dared fly too high and too close to the sun on wings glued together with wax that melted when he got too close to the sun and he fell back to earth. Maybe the stocks just flew too high too fast. LRCX over $200, Applied over $55, ASML over $175 or MU approaching $50...

    Rather than bounce back the bleeding continues. At what level do we stop this Reset of valuations? Intel top ticks ASML stock (what does this say?)
    The chip & chip equipment stocks continued their sell off today. Rather than a bounce we see continued bleeding. As we had suggested in our previous note, we view this as a more ominous sign that investors may be abandoning the group after a very long run. Our recent estimate of a potential 20% hair cut may not be very far off.

    Obviously the highest flying stocks have come down the fastest as well. Anything related to memory is suddenly radioactive. As we said in our last note, this remains more of a "perception correction", knee jerk reaction rather than long term investing in the secular growth of memory. Memory price declines are's what Moore's law and the entire industry is all about. Sooner or later supply will exceed demand and like any other supply/demand driven cyclical market there will be a correction. At this point its not even clear that we are in an oversupply condition but investors are reacting to a "perceived " fear.

    It's pointless for analysts to argue which direction NAND is headed as the stock declines are not based on NAND decline but rather the fear of NAND decline. Fear and Greed are the two things that drive Wall St. There are still plenty of gains in the stocks to be locked in by selling at even these less than peak levels. Speaking of selling..... Intel may be smarter than almost any technology investor or fund manager...

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    People have totally missed the fundamental changes taking place. The "Great Acceleration" is here and growing current markets and creating new ones at an accelerating rate. The problem is education/training. As I have written, colleges are obsolete and not even remotely close to keeping up with the times. Knowledge has a shorter and shorter half life and will have to go to a subscription basis for people to keep up. The fundamental basis of how learning is structured is obsolete and only kept in place by special interests that are harming everyone and everything. I will start writing an explanation and post it in the near future. Current educational models are to expensive, time consuming and hard to apply.

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    My limited amount of experience tells me the following:

    -MS: When was the last time they were right about anything? After all, they're a bank, they're here to make money; not to inform the general public. What's the cheapest way for them to buy Samsung or TSMC? 'Communicating a downgrade first' would be my knee-jerk reaction. The crisis learned me never to trust banks. Usually (but not always!), after they lowered price targets, those stocks go up.

    -'Peak tech' --> I don't if the tech selloff is even related to the tech sector anyway, to me it looks like what Jim Cramer calls a 'rotation'.
    Consider retail has been doing very bad, JC Penney's (I have to admit I don't even know what kind of shop that is) and Sears almost bankrupt. Oil stocks were not doing too well either, but getting better. Tech is way up. Now, all the suddenly, retail becomes more attractive. You need money to buy those retail stocks, but money has to be retrieved from nowhere (for mere mortals like me). Now what do you do, sell some stocks which are at a loss (biotech maybe?), sell some which are just starting to go up again (oil stocks), or sell those ones which made you a nice profit (tech, like NVDA / TSLA, FB etc.)? Maybe the best answer would be to cut your losses, and sell those who don't make any chance. But also investors are vain (well, for one, I am!), they don't like to admit a loss, so they'll keep the ones who are in the red (as selling them amounts to admitting a wrong decision to buy them), keep the oil to go up in the near feature, so they're left with tech-stocks to sell, and still sleep well because they made a nice profit once tech sold! With the tech gains they can buy retail stocks. Not sure, but this rotation-theory made sense to me.

    -Semiconductor focus: I think only relating this to the semicon industry is too narrow of a vision also. Fallout of the rotation was even at robotics firms (Yaskawa / Kuka has been doing great lately! But also hit, even if not traded not in the US) and also Tesla.

    -Overvaluation: Yes, there are stocks which are overpriced; I'd say INTC (due to competition in server, multi-core desktop / workstation and even HPC), but I said so three months ago and boy was I wrong. But at the same time there are a lot of stocks out there who have plenty more room to grow; you just have to figure out which ones. And sometimes the big banks are screwing you with their price targets, you just have to figure out which times! I still think a master in mass psychology and chaos theory (as chaos theory seems to be the outcome of lots of sub-millisecond complex stock algorithms influencing each other) would be better for investors than actual knowing what's going on in the tech sector.

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    Any old hands here who remember 1999? Lots of the semiconductor stocks are back at similar prices to that. You could argue this is the verge of a breakout, the start of a fresh start, leaving 2 decades of reset behind. Or you could argue that like 1999, optimism has become a bubble and the bubble will burst.

    Personally, I think today is different from 1999 in several ways. First of all, individual stocks don't matter, SMH or SOXX (ETFs of the semiconductor industry) are what drive the market. INTC is supported by SMH and SOXX as it is the largest holding in those ETFs. Second, there is a durable wall of worry that still exists today that didn't exist in 1999. Worries are good, it keeps the bubble full. Thank you North Korea and the government shutdown flirtation for that.

    Part of the wall of worry is the common sentiment that we're nearer to the top than the bottom. The stock market has had a long bull run, longer than usual. The defensive posture this creates could help the SMH recover and continue higher.

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