This week, investors will evaluate a string of tech earnings releases from
a variety of sectors, including software and handheld devices. This could
momentarily distract them away from the chip group, which recently monopolized
attention due to a barrage of profit warnings. Nevertheless, the semi sector
was all the rage for a couple of days, reflecting a divided opinion on the
Street. On the bearish side, the announced slowdown could just be the tip of
the iceberg, that is, of a broader economic downturn. Indeed, recent warnings
have not been confined to the tech sector, while reports such as retail sales
and industrial output were lackluster, fuelling fears that high oil prices and
higher interest rates are taking their toll on growth. Talking to experts, The
Wall Street Journal notes that the best signal on when to buy or sell chips is
the capacity use report, saying that when the indicator stalls or declines, it
is time to cash in. Last week's flat reading should boost the bears. Sanford
C. Bernstein's Vadim Zlotnikov tells the daily that recently, tech sales have
been driven by replacement demand rather than demand for cutting-edge
products. Thus, chip-making gear does not become obsolete as quickly as in the
past, and excess capacity lingers longer than it used to. On the bullish side,
select investors find the warnings to be a healthy move, as companies, seeing
higher inventories, are moderating production in a bid to prevent a hard
landing as the one witnessed in 2001. iSupply's Dale Ford tells CNNMoney that,
"It's a little bit of a yellow flag, not a crisis or a problem," while Dan
Tracy, of Semiconductor Equipment and Materials International, adds that
"bookings will [likely] moderate downwards in the second half of the year. I
think that's pretty natural for the market. It's healthy for the industry that
some of this investment moderates." Talking about moderation, a measured rate
decision and assessment of the economic outlook is widely expected from the
Fed this Tuesday.
High-Tech Monday Update is provided courtesy of Thomson Financial. This
information is believed to be true and accurate; we take no responsibility for
inaccurate information and reserve the right to update our reports. For more
information, please visit our web site at http://www.thomson.com/financial.
SOURCE Thomson Financial Corporate Group
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