), the world's largest semiconductor maker, is scheduled to
deliver its latest quarterly results today after the close of
U.S. markets. Ahead of that report, some chip
are trading higher.
On the heels of some positive commentary
on the sector from Goldman Sachs earlier this
, S&P Capital IQ raised its 12-month fundamental outlook on
chip stocks to positive from neutral this week.
"After about a 3% sales decline estimated for 2012, the
industry is poised to grow about 4% in 2013, in our view," said
S&P Capital IQ in a research note. "We see the strength led
by a pickup in communications spending, continued growth in
consumer electronics, an uptick in automotive, and GDP-like
growth in military and industrial end markets."
In 2012, the semiconductor sub-sector lagged the broader
market as the Philadelphia Semiconductor Index returned just four
percent compared to a gain of nearly 12 percent for the S&P
500. As S&P Capital IQ notes, that was the third straight
year in which the Philadelphia Semiconductor Index trailed the
S&P 500, but things could be better for the group this
"Turning to 2013, we believe the industry is in good shape to
at least grow in line with global GDP, likely reversing much of
the trends seen last year, such as some chip customers' lean
inventories, low utilization, and cost-cutting," said S&P.
"We think communications end market spending will bounce back in
2013. Wireless and wireline communications account for
approximately 32% of chip sales, and we expect this end market to
pick up on pent-up demand."
Despite the encouraging outlook on the semiconductor group for
2013, S&P Capital IQ currently has Underweight ratings on
several marquee semiconductor ETFs, including the Market Vectors
Semiconductor ETF (NYSE:
SMH is heavily allocated to just two stocks - Intel and Taiwan
). Those names combine for almost 35 percent of the fund's weight
and predictably act as the primary drivers of the ETF's returns.
Despite an unimpressive 2012 performance, SMH showed signs of
life late in the year and including today's performance, the ETF
has gained almost 10 percent in the past three months.
Other top holdings in SMH include Texas Instruments (NASDAQ:
), Broadcom (NASDAQ:
) and Applied Materials (NASDAQ:
Another ETF S&P rates as Underweight is the iShares PHLX
SOX Semiconductor Sector Index Fund (NASDAQ:
). SOXX is also heavy on the likes of Intel, Texas Instruments,
Broadcom, Applied Materials and Taiwan Semiconductor as those
names combine for about 40 percent of the ETF's weight.
Importantly, SOXX spreads its allocations around a bit more than
SMH as no single stock represents more than 8.4 percent of SOXX's
weight. SOXX has gained about eight percent in the past 90
Due to tablets and other devices stealing market share from
traditional personal computers, S&P warned computing
semiconductor revenue could be flat this year.
Industry data suggests portable devices are cannibalizing the
traditional PC market (computing), and indicates software
investment will be at the expense of enterprise hardware. We
believe these trends likely portend a long-term, structural
shift; thus, we look for computing-based semiconductor revenue to
be flat in 2013 after a near 8% decline seen for 2012," the
research firm said in the note.
S&P Capital IQ also has Underweight ratings on the
PowerShares Dynamic Semiconductors Portfolio (NYSE:
) and the SPDR S&P Semiconductor ETF (NYSE:
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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