Chip Chop (INTC, FORM, WFR, AMAT)
I did something that I don't often do today -- I bought some options. And I'm also doing something I do even less frequently, which is writing about buying options.
I am not an options expert, and while on the whole I've profited from them in the past my good and bad moves have come close to cancelling each other out. I trade in options on occasion when I just want to take a small flier on a stock, or when I want to leverage an equity position ... or when I've got the gambling jones and there's not a casino nearby.
In this case, I opened a small position in VNLAD, the Intel January 2007 $20 LEAP options. I paid $2.70 for them. I'm not generally a megacap investor, nor am I excited enough about Intel to buy a full share position -- but I think the market is really beating Intel up way too much today and over the past several weeks. I think a 10% gain at some point between now and next January is quite likely, with one possible influence being what I expect to be a significant replacement cycle coinciding with the release of Vista in about a year. INTC at a PE of 14 seems silly -- any hand-wringing by analysts and any reasonable downside should now be priced in, and I wanted to place a small bet on the presumption that they will not long be priced at a discount to the overall market.
Let me be very clear that this is just a little bet -- I could easily be wrong, and I can live with losing all of this investment if that's the case.
There really seem to be two sides to the chip debate lately. My two semiconductor-related companies, Formfactor (FORM) and MEMC Electronic Materials (WFR) are on a tear in the tools and supplies business, but INTC, the heart of the industry, seems to be the wounded giant -- let down by Dell's underperformance today and being circled by upstart AMD, and the other companies in the space seem to me to be wildly unpredictable -- though I am tempted by Cypress (CY) thanks, in large part, to their 80% share of SunPower.
Is the story of the chip sector that RBC is right when they write that Intel's customers appear to be getting choked with inventory, or is it that AMAT's significant order growth means a big capacity buildout is underway to meet growing demand? I have no idea what will happen in the near future, but all the indications that I see from FORM and WFR indicate that capacity is ramping up and that demand for chips of most varieties is ramping up even faster. And past experience has led me to be awfully cautious about relying much on analyst "channel checks" in assessing the health of a company.
I think the popular opinion these days is that the personal computer semi line is just blah -- it's not sexy anymore to build the chips that run the computers that sit on all of our desks or laps. What's sexy is Flash -- people want to be in fast-growth supplies for the Ipod and digital camera markets. My gut feeling is that this will rebound -- and that Vista and the rest of the next generation of Windows software should drive a fairly big market in the faster chips, even dual-core, that will better be able to handle this software. It's hard for me to bet against the need for more advanced personal computers and servers, or to believe that Intel has really been beaten for good by little AMD.
I do believe that the variety of chips now in production for all kinds of products makes the industry much harder to figure out, which is why for my equity positions I've focused on WFR, which supplies the raw materials for all varieties of semiconductors, and Formfactor, which supplies an extremely broad range of top-of-the-line testing equipment for most types of chips -- they should both do well as long as semis in general are in increasing demand. I hope.
But I thought Intel was just too cheap to ignore today. I guess we'll find out in the months to come whether I was wrong on that.
I am not an options expert, and while on the whole I've profited from them in the past my good and bad moves have come close to cancelling each other out. I trade in options on occasion when I just want to take a small flier on a stock, or when I want to leverage an equity position ... or when I've got the gambling jones and there's not a casino nearby.
In this case, I opened a small position in VNLAD, the Intel January 2007 $20 LEAP options. I paid $2.70 for them. I'm not generally a megacap investor, nor am I excited enough about Intel to buy a full share position -- but I think the market is really beating Intel up way too much today and over the past several weeks. I think a 10% gain at some point between now and next January is quite likely, with one possible influence being what I expect to be a significant replacement cycle coinciding with the release of Vista in about a year. INTC at a PE of 14 seems silly -- any hand-wringing by analysts and any reasonable downside should now be priced in, and I wanted to place a small bet on the presumption that they will not long be priced at a discount to the overall market.
Let me be very clear that this is just a little bet -- I could easily be wrong, and I can live with losing all of this investment if that's the case.
There really seem to be two sides to the chip debate lately. My two semiconductor-related companies, Formfactor (FORM) and MEMC Electronic Materials (WFR) are on a tear in the tools and supplies business, but INTC, the heart of the industry, seems to be the wounded giant -- let down by Dell's underperformance today and being circled by upstart AMD, and the other companies in the space seem to me to be wildly unpredictable -- though I am tempted by Cypress (CY) thanks, in large part, to their 80% share of SunPower.
Is the story of the chip sector that RBC is right when they write that Intel's customers appear to be getting choked with inventory, or is it that AMAT's significant order growth means a big capacity buildout is underway to meet growing demand? I have no idea what will happen in the near future, but all the indications that I see from FORM and WFR indicate that capacity is ramping up and that demand for chips of most varieties is ramping up even faster. And past experience has led me to be awfully cautious about relying much on analyst "channel checks" in assessing the health of a company.
I think the popular opinion these days is that the personal computer semi line is just blah -- it's not sexy anymore to build the chips that run the computers that sit on all of our desks or laps. What's sexy is Flash -- people want to be in fast-growth supplies for the Ipod and digital camera markets. My gut feeling is that this will rebound -- and that Vista and the rest of the next generation of Windows software should drive a fairly big market in the faster chips, even dual-core, that will better be able to handle this software. It's hard for me to bet against the need for more advanced personal computers and servers, or to believe that Intel has really been beaten for good by little AMD.
I do believe that the variety of chips now in production for all kinds of products makes the industry much harder to figure out, which is why for my equity positions I've focused on WFR, which supplies the raw materials for all varieties of semiconductors, and Formfactor, which supplies an extremely broad range of top-of-the-line testing equipment for most types of chips -- they should both do well as long as semis in general are in increasing demand. I hope.
But I thought Intel was just too cheap to ignore today. I guess we'll find out in the months to come whether I was wrong on that.
Labels: WFR
This article posted by One Guy @ 2/17/2006 04:29:00 PM 0 comments
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