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Intel Report Crushes Semiconductor ETFs - Leveraged ETFs

Posted
12/12/2011 12:49:00 PM
By: Zacks.com
Referenced Stocks:AMAT;INTC;KLAC;NETL;SLAB

Just when investors thought the worst in the American economy was over, a number of blue chips have begun to warn on their performance, casting a shadow over the near term future. The latest American giant to warn was Intel ( INTC ), the chip producing colossus that thoroughly dominates the market. The company warned that it would miss its previous forecast thanks to weather problems in Thailand, taking the wind out of the company's sails just a few days after the Santa Clara-based firm hit its 52 week high in stock price.

The cause of the decline was largely due to the supply disruption that resulted from some of the worst flooding that the Southeast Asian country experienced in more than half a century. This pushed exports sharply lower and set Intel back in terms of hard disk drive inventories as some reports suggested that the national output of this key computing component were down more than 52% from the year ago period (also see ETFs Vs. Mutual Funds ).  

Thanks to this, quarterly revenue is expected to be down close to $1 billion from the previous forecast of $14.7 billion for the quarter while non-GAAP gross margin is expected to decline by fifty basis points, down to 65.5%. If this wasn't bad enough, reports also seemed to suggest that the problem wouldn't be going away in the next few weeks and that the situation could take months to resolve. In fact, Intel went on to report that it "expects hard disk drive supply shortages to continue into the first quarter, followed by a rebuilding of microprocessor inventories as supplies of hard disk drives recover during the first half of 2012". (read Top Three Precious Metal Mining ETFs )

Unsurprisingly, Intel shares were hard hit by the news as the stock price fell by over 5% in mid-day Monday trading. This report also had a pretty severe impact on the rest of the tech space pushing a variety of ETFs down sharply on the news. The worst was in the semiconductor ETF space and especially so in the following four ETFs:

Semiconductor HOLDRS ETF ( SMH )- Down 3.9%

Like all HOLDRs, this product doesn't track an index but does offer extremely concentrated exposure to its industry. In this case, the fund allocates nearly 23% of its assets to Intel while also giving Texas Instruments ( TXN ) and Applied Materials ( AMAT ) weights of 21% and 10%, respectively.  This ensures that SMH offers investors a highly-concentrated bet on large caps, meaning that broad exposure will not be achieved but the underlying securities will be extremely liquid.

PHLX SOX Semiconductor Sector Index Fund ( SOXX )- Down 3.6%

The fund tracks the PHLX Semiconductor Sector Index offering exposure to 31 companies in total. The fund gives its top weighting to Intel, allocating 9.5% to the company. In addition to INTC, other top weightings go to Texas Instruments and Taiwan Semiconductor ( TSM ), giving the fund a slice of international exposure in the semiconductor space (also read Three Low Beta Sector ETFs ).

SPDR S&P Semiconductor ETF ( XSD )- Down 3.7%

For a slightly larger and more spread out portfolio, XSD could be the way to go as the product holds just over 50 securities in total. This is done by tracking the S&P Semiconductor Select Industry Index which represents the Semiconductor sub-industry portion of the S&P Total Markets Index. The index also uses a modified equal weighting system, ensuring that small caps aren't forgotten. Unlike the first two funds on this list, XSD doesn't give the top portion to Intel, instead allocating higher weightings to NetLogic Microsystems ( NETL ) and Silicon Labs ( SLAB ).

PowerShares Dynamic Semiconductors ETF ( PSI )- Down 4.0%

For a slightly more 'active' approach in the industry, PSI could be an intriguing choice. The fund tracks the Dynamic Semiconductors Intellidex Index which is designed to provide exposure to the semiconductor space by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Intel makes up the second biggest allocation in this fund at 4.9%, trailing only KLA-Tencor ( KLAC ) which makes up 5.2% of assets (also read Three All-Star Leveraged ETFs ).

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