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Has the time come to take profit in chip stocks? The sector has been on a tear, with the SOX up 45% since the November bottom. Citigroup's Glen Yeung wrote a note this morning which pointed out that "investors are naturally considering taking profits," and that that this will likely be the case in the near term.
Adding fuel to the profit-taking theory, Yeung says, is a peaking ratio of upward/total earnings estimate revisions, and "seasonal trading patterns that typically point to some retrenchment" in the June quarter. He notes that "data points have been more mixed" in Q2 than in the first quarter, when demand improved sequentially on wide-spread inventory replenishment.
While anticipating some selling pressure, he does not expect new lows for the chip stocks, given signs of economic improvement and stabilization, if not necessarily improvement, in end demand. He advising buying the stocks on pullbacks, and in particular recommends Intel (INTC), Qualcomm (QCOM), Altera (ALTR) and Nvidia (NVDA).
Likewise, Kaufman Bros. analyst Suji De Silva today wrote that the April inventory workdown has left many segments with healthy or even lean inventories, with spot shortages of some components. But he says checks find May and June trading flat sequentially, "with some potential for a slight retracement." De Silva confesses to "doubts of a larger improving trend beyond that executed in April." De Silva does see some specific growth drivers, including China government stimulus, smart phoens and netbooks, and advises seeking plays on those trends. In smartphones, he sees Skyworks (SWKS) and Cypress Semiconductor (CY) as well positioned; in the consumer/digital TV area, he is "constructive" on Pericom Semiconductor (PSEM), MIPS Technologies (MIPS), Broadcom (BRCM) and Zoran (ZRAN).
Broadpoint.Amtech chip analyst Doug Freedman agrees that "seasonal patterns could pressure semis in the near-term, but writes in a research note today that a second leg of the semi rally could come later this year, driven by select product upside and recovery in lagging end markets. "We are making the call that semis may trade a little lower as we have normal seasonal trade patterns forming, but we dno think any sell-off will be very deep," he writes, and advises using pullback to add to favorite names. Freedman says a broader recovery should drive up shares of Texas Instruments (TXN), National Semiconductor (NSM) and Intel (INTC); later in the year he would consider rotating into recovery laggards with exposure to autos and the industrial sector.
Meanwhile, IDC reported today that worldwide PC microprocessor unit shipments fell 10.9% sequentially in the first quarter, after a 17% sequential drop in Q4 from Q3. Units were down 13% on a year-over-year basis in the quarter. On a revenue basis, the sector was down 11% sequentially, after an 18% drop in Q4, and down 25.1% from a year ago.
IDC estimates that Intel's Atom processor shipments were down 33% sequentially in the quarter, which is consistent with Intel's own comments, with OEMs holding significant inventory coming into the new year. IDC said Atom processors were about 21% of Intel's processor shipments in the quarter, and 6.5% of the company's processor revenues.
Intel's processor market share was 77.3%, down 4.7%, while AMD had 22.3% share, up 4.6%.
For Q2, IDC sees a modest sequential decline in processor unit shipments.
The SOX today is down 5.18, or 2.1%, to 243.68.
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