Recession & Semiconductors: vaporware or disaster?

[Arun]

The stock exchange in general isn't too pretty to look at nowadays, and technology including semiconductors has been hit especially hard given many companies' visibility to the economy's problems and the stocks' inherent volatility. But is that justified? The dynamics in the market seem a fair bit more complex to me than what some analysts are considering.

First of all, some are just so incredibly naive that they consider weakness in memory products as being somehow related to a recession or consumer spending slowdown. Obviously that entire sector of the industry is a disaster right now, and the reasons have nothing to do with the economy. If you look at Intel's results and what they said, the fact other non-memory semiconductor companies dropped in the aftermath is absolutely laughable.

You also have plenty of other signs of the PC industry doing okay in Q4 and forecasts being decent for Q1. Even Apple's negative forecast has nothing to do with Mac hardware sales. So there are plenty of signs of PCs slowing down - and when I say plenty, I mean none.

Handhelds, on the other hand, are a bit harder to figure out. Texas Instruments doing good would seem more importan than Motorola which is a trainwreck anyway. So far as I can tell, what's happening right now is that non-essential spending is getting very slightly lower by US consumers (and perhaps companies as well) but that it mostly affects markets where purchases are unscheduled, possibly expensive, and binding over time (i.e. phone contracts). You could even argue that means the biggest problem for now is not a recession, but rather the fear of an upcoming recession.

Anyone else has an opinion on this? I'm by no means an authority on the subject so I'd love some (possibly completely opposed) feedback from other people!

 

[AlphaWolf]

eh markets are fickle, based entirely on perceptions of expectations, not necessarily facts and realities. You can probably even get a number of people to tell you that the US has been in a recession for a while now and that the numbers are just cooked so that perception doesn't catch up with reality.

 

[Arun]

Well, whatever floats their boat! But I'm more interested in trying to get to the bottom of what's actually happening rather than the market's perception of it. The latter is sometimes truly impossible to guess, while fundamentals are always hard but never impossible to predict with reasonable accuracy.

As I said in my previous post, it seems to me handhelds are slowing down in the USA but still growing strongly internationally, while PCs are growing everywhere (obviously more in emerging markets but that's not the point) and show no signs of a recession. That's just my perception though, which obviously also risks not having much to do with facts and realities!

 

[PurplePigeon]

It actually seems to me that the market perception of what is happening is clearer than what is really happening.

Since there is a strong whiff of recession in the air, some investors are connecting the dots and trying to stay ahead of the curve. Zero or negative growth would imply lower spending (both consumer purchases and business capital expenditures), in turn implying that earnings will stall or fall.

I only casually follow technology company business results, but from what I've read, I agree that the 2008 Q1 forecasts made during the quarterly investor calls don't seem to presage any downturn in spending. Obviously investors are jumpy (evidenced by the market reaction to Intel) and one might be tempted to call those who are selling irrational. However, we're in an unusual position right now, where we seem to be on the cusp of a downturn in growth, whether a full-blown recession or not. And the result of that change in expectations doesn't seem to have fully filtered down throughout the economy -- in terms of purchasing decisions, and therefore, in forecasts by CEOs of Q1 results, say. In some sense, by the time CEOs make a negative forecast, the canary has long since started to wobble on its feet.

So, yes, based on facts, investors are jumping the gun and reacting to the potential of a recession. But it's not an unreasonable position to take, especially given that once the facts are firm and agreed upon, it's usually too late to take advantage of that information.

 

[ShaidarHaran]

I look at things this way:
if the economy takes a downturn (some would argue it already has) then sales of PCs and components are sure to drop. Both businesses and consumers would hold off on upgrading/replacing PCs until the economy recovers, as short of component failure almost no one *needs* new systems or components.

 

[dizietsma]

The problem with stock markets nowadays is that it is not a small group of people investing in the success of a company but a lot of people investing in the share price. So it is all a bit screwed and can fluctuate no matter what the underlying company does.

Personally I would let these jitters die down and then invest in Intel. We know they have a strong product line until 2009.

 

[Voltron]

I would like to point out that Motorola is probably not a good indicator of handset market health considering the company's clear problem - lack of innovative new products. These problems are well documented.

Anyhow, if you haven't yet you may want to read the Texas Instruments call transcript for info on the market, as well as some insight on your question about integration in handheld. Some interesting info in there.

Phones don't seem likely to take too big of a hit in the U.S. anyway IMO because they are still highly subsidized.

Elsewhere, and this is obvious, but I would think the cheap dollar is a major plus for the PC and related industries in terms of sales outside of the U.S.

 

[Arun]

I would like to point out that Motorola is probably not a good indicator of handset market health considering the company's clear problem - lack of innovative new products. These problems are well documented.

Indeed, part of the problem with my first post is that I read some classic misinformation regarding AT&T and believed it, assuming their mobile phone results would be below expectations (it was phrased so that I thought that was actually fact - gah!) - so I had to edit that out once I realized it was full of shit and that made the part regarding Motorola a bit less clear (and part of the analysis incorrect)

Anyhow, if you haven't yet you may want to read the Texas Instruments call transcript for info on the market, as well as some insight on your question about integration in handheld. Some interesting info in there.

I read it yesterday, I'm honestly not sure it gives that much info about integration though. I found CSR's transcripts and presentations some of the most interesting ones on that personally, but obviously they're biased as they're betting the ship on the lack of integration momentum in the mid-term. TI did seem bullish on discrete analogue and OMAP though in a short passage, which is interesting/valuable information. Cheers!

Phones don't seem likely to take too big of a hit in the U.S. anyway IMO because they are still highly subsidized.

Would that really help against the *fears* of a recession though? If you think your situationm ayt get worse in the coming year, signing an operator contract to get a new mobile phone doesn't seem like a very smart thing to do. But then again, nobody said consumers would be smart or reasonable either...

Elsewhere, and this is obvious, but I would think the cheap dollar is a major plus for the PC and related industries in terms of sales outside of the U.S.

Indeed, that certainly helps (although it probably can't account for *all* the strength).

 

[mushroom]

I am afraid Nasdaq will be tanking this year, just invested in PSQ :smile:

 

[{Sniping}Waste]

As for TI, Its still recovering form the damage Tom Engibous (the nick name TI employees gave him was End Of Us) did to it before leaving. As far as I know the Kilby center (TI's research building) is mostly empty now and Dmos 4 I believe is empty. The new CEO Templeton has a lot of damage to fix but is slowly doing so. They been hiring engineers that have retired to help get back on track again. I see TI getting back to ground breaking research like they did in the past that should put TI back on top again.

 

[Eternalightwithin]

I'm not familiar...

What did this guy do to TI?
Any enlightening articles?