NEW YORK (CNNfn) - Semiconductor stocks rose sharply Wednesday after an industry trade group released a report showing that orders for the equipment used to manufacture chips were stronger than expected in July.
Reassuring comments from TriQuint Semiconductor, a leading supplier of chips used in wireless communications devices, added to the positive momentum, which drove the Philadelphia Stock Exchange's semiconductor index up 27.72 points to 564.75, a 5.2 percent gain on the day.
Late Tuesday, the Semiconductor Equipment and Materials International, or SEMI, said that orders for chip-equipment last month rose 5 percent to $764.2 million. What's more, SEMI reported that chip-equipment makers took $67 in new orders for every $100 in deliveries, making for the highest book-to-bill ratio the industry has had since February.
Chip-equipment analysts look at ordering patterns and book-to-bill as indicators of future demand. And while the most recent figures still show a disparity between bookings and billings, they were stronger than some had expected.
Separately on Tuesday, the Semiconductor Industry Association, or SIA, put out its report on semiconductor factory capacity utilization in the second quarter. Utilization dropped to 73 percent from 84 percent in the first quarter. At the same time, the SIA report showed that capacity utilization of the most advanced chip-making equipment rose to 84 percent from 80 percent in the prior quarter.
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Flattening orders and improving leading edge capacity utilization – the industry is clearly entering the trough.
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Brett Hodess
Merrill Lynch |
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The semiconductor industry is characterized by boom-and-bust cycles, with periods of undersupply and high prices followed by spells of overcapacity and slumping profitability. The current downturn has persisted since last fall, and there has been considerable debate on Wall Street about when the upturn will begin.
Merrill Lynch's Brett Hodess on Wednesday told his clients that latest data support the idea that the industry is either at or near the bottom of the cycle.
"Flattening orders and improving leading edge capacity utilization – the industry is clearly entering the trough," Hodess said in a research note Wednesday.
Hodess said he is unsure how long the trough will last, but he noted that technology investing could pick up if capacity utilization stays above 80 percent on the more advanced chip-making equipment.
"This should preclude valuations from retesting previous troughs of this year, making the stocks very attractive following the pullback of the past week," Hodess said.
Investors for the most part appeared to agree. The stocks of chip-equipment makers were responsible in large part for the chip sector's gains.
Shares of Applied Materials (AMAT: up $1.89 to $43.90, Research, Estimates) were among the biggest gainers. KLA Tencor (KLAC: up $2.44 to $48.79, Research, Estimates), Teradyne (TER: up $2.15 to $31.49, Research, Estimates), and Novellus (NVLS: up $2.38 to $46.78, Research, Estimates) also were on the rise.
The stocks of most chipmakers also advanced.
Among PC-related chipmakers, shares of Intel (INTC: up $0.89 to $27.96, Research, Estimates) and Micron Technology (MU: up $1.95 to $37.25, Research, Estimates) moved higher. At the same time, shares of Advanced Micro Devices (AMD: down $0.24 to $14.51, Research, Estimates) lost ground.
Other chipmakers finishing higher Wednesday included: Texas Instruments (TXN: up $1.14 to $33.65, Research, Estimates); LSI Logic (LSI: up $1.15 to $20.99, Research, Estimates); Lattice Semiconductor (LSCC: up $1.12 to $23.07, Research, Estimates); Linear Technology (LLTC: up $1.77 to $40.77, Research, Estimates); and Altera (ALTR: up $2.26 to $28.74, Research, Estimates).
At the same time, shares of TriQuint Semiconductor (TQNT: up $2.92 to $22.32, Research, Estimates), which specializes in chips used in wireless communications products, rose more than 14 percent. Those gains came after TriQuint executives Tuesday told analysts late Tuesday that they expect to hit their financial targets for the remainder of the fiscal year and they see demand for mobile phone improving by year-end.
Intuit gains, Sycamore holds steady
Elsewhere in the technology sector Wednesday, shares of Intuit (INTU: up $6.59 to $36.04, Research, Estimates) rose more than 22 percent following its latest quarterly results. The personal finance and accounting software maker – whose products include Quicken and TurboTax – reported a loss that was narrower than expected and stood by its previous growth forecasts.
Prudential Securities on Wednesday upgraded its rating on Intuit to "buy" from "hold," telling investors that the stock represents an excellent opportunity at current trading levels. UBS Warburg and Pacific Crest Securities each reiterated their "strong buy" recommendations on Intuit's shares Wednesday.
The stocks of other software makers were mixed. Shares of Microsoft (MSFT: down $0.12 to $60.66, Research, Estimates), the leading supplier, were among those finishing lower. Moving higher were shares of software makers including Oracle (ORCL: up $0.51 to $14.64, Research, Estimates), Siebel Systems (SEBL: up $0.48 to $23.99, Research, Estimates), and PeopleSoft (PSFT: up $2.73 to $36.84, Research, Estimates).
The Goldman Sachs computer software index ended the session 4.1 points higher at 164.53, a 2.6 percent gain on the day.
At the same time, shares of Sycamore Networks (SCMR: up $0.08 to $5.08, Research, Estimates) held modest gains following its latest quarterly financial results.
The company, which makes fiber-optic networking equipment, logged a loss on Tuesday that was in line with expectations but warned that revenue in the current quarter could fall as much as 75 percent below the year-ago levels as a slowdown in spending among telecommunications service providers continues to weigh on results.
Other stocks in the networking segment that also moved higher Wednesday included Nortel Networks (NT: up $0.29 to $6.52, Research, Estimates) and Lucent Technologies (LU: up $0.17 to $6.68, Research, Estimates).
Shares of JDS Uniphase (JDSU: up $0.43 to $7.50, Research, Estimates), the No. 1 supplier of the components used to make fiber-optic networking equipment, finished more than 6 percent higher.
Cisco Systems (CSCO: up $0.47 to $16.48, Research, Estimates), a leading supplier of the equipment used to guide traffic over the Internet, took back its earlier losses, ending nearly 3 percent higher. Shares of Cisco rival Juniper Networks (JNPR: down $0.83 to $16.32, Research, Estimates) fell nearly 5 percent.
The American Stock Exchange's networking index finished 6.19 points higher at 290.14, a 2.2 percent gain on the day. 
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