Tech Base Crumbling - Zacks Industry Rank Analysis
November 28 2011 - 7:00PM
Zacks
Industry Rank Analysis 11-29-11
Arguably, the single most important invention of the 20th century
was the semiconductor. Semiconductors are as central to the modern
economy as steel was in the heyday of Carnegie, Frick and Krupp.
They are the basic “raw material” of the tech world.
Semiconductors and other related components are the base of the
Technology pyramid. While the apex of that pyramid, the
Apples (AAPL) and
IBMs (IBM) of
the world still appear solid, the base appears to be crumbling. The
semiconductor industry is displaying significant weakness.
The implications can go far beyond just the companies that make the
semiconductors or the equipment needed to produce them. They are
basic building blocks, not just for computers and communications
equipment, but into just about every manufactured product. Every
car produced today, for example, has more computing power on board
today than the Apollo 11 spacecraft did. That computing power is
embedded in the semiconductors the car uses.
Zacks Industry Classifications
The Zacks industry classifications are very fine, with 258
different industries tracked. It's not particularly noteworthy if a
single small industry shows up doing well -- a single firm with
good (bad) news can propel a one- or two-firm industry to the top
(or bottom) of the charts.
It is interesting when you see a cluster of similar industries at
the top of the list. The same holds true for the bottom of the
list. The definition of size that matters here is not the total
sales or market capitalization but the number of companies in the
“industry.”
Building Blocks Crumbling
The larger semiconductor industry is broken down into a large
number of smaller “industries” based on the type of chip they make.
Of the 50 lowest ranked “industries,” 14 are involved in these
basic building blocks of technology. Even more startlingly, eight
of the 10 worst are from that group.
Some of these industries are extremely small; five of the eight
have four or fewer firms in them. However, further down the list
are a few industries with large numbers of firms in them. The
largest by far is the sort of catch-all group, Electronic
Components-Semiconductors, with 61 firms in it. The Miscellaneous
Electronics Components group has 44 members.
There are a total of 177 firms in these 14 industries combined. Of
those, 34 (16.9%) of them hold the dreaded Zacks #5 Rank, and an
additional 50 (28.2%) have Zacks #4 Ranks. If the Zacks Ranks were
random, then one would expect that 5% of the names in an industry
would be #5's and 15% would be #4's.
Most of the firms shown below are either small (below $1 billion)
or mid-cap firms (between $1 billion and $5 billion), and several
are in the very tiny sub-$100 million microcap range. Only three --
Texas Instruments (TXN),
Kyocera
(KYO) and
Altera (ALTR) -- are bona fide large
caps with a market cap of over $10 billion. Those and the mid-caps
most likely have options that could be used to bet against the
firms, and they probably have enough liquidity that you could, if
so inclined, short them.
As for the small caps, sell them if they happen to be in your
portfolio, but if not, it is probably best to just ignore them
altogether. For most investors, the significance of the weakness
here is in what it is saying about those firms further up the food
chain in technology, especially on the hardware side. This is not a
red flag on those names, but it sure does flash a yellow warning
light.
Valuations & Expectations
The valuations on these firms are all over the lot, ranging from
seemingly super-cheap low-single-digit levels based on 2012
earnings, to those where the P/E cannot be calculated because the
firms are expected to lose money. If you have a strong stomach and
a long-term investment horizon, it might be worth taking a flyer on
the super-cheap ones such as
TTM Tech (TTMI) or
Freescale (FSL), but even so you would probably be
better off waiting a few weeks to do so.
The expectations are dropping like a rock. An estimate in motion
tends to stay in motion. Thus it is very likely that the estimates
will continue to fall, and that the true earnings will turn out to
be much lower than the current estimates anticipate. Thus the
“true” P/E based on both 2011 and 2012 earnings will be much higher
than shown here. Very few of the companies pay a dividend, so there
is no yield support for them.
If you do feel the need to have a chip stock in your portfolio,
stick to the larger-cap firms that offer solid balance sheets and
good yield support that still have Zacks Ranks of at least #3. The
800-pound gorilla of the industry,
Intel (INTC),
fits that description nicely. It has a Zacks #2 Rank, and offers a
very nice dividend that the firm has consistently been increasing
in recent years.
This is no time to be a hero buying beaten down small-caps with
deteriorating earnings prospects. Low P/E’s based on earnings that
are falling apart are the thing that value traps are made of. In
any case, the market capitalization of INTC is bigger than 175 of
the 177 firms on both lists below, combined. At current prices,
INTC could buy the 48 smallest of them with the cash on its balance
sheet alone.
Given that the chips are at the base of the tech food chain, it
would also make sense to be cautious on other tech firms,
particularly on the hardware side.
Number 5 Ranked Firms
Company |
Ticker |
Market Cap ($ mil) |
P/E Using Curr FY Est |
P/E Using Next FY Est |
"%Ch Curr Fiscal Yr Est - 4 wks" |
"%Ch Next Fiscal Yr Est - 4 wks" |
"Current Price" |
Div Yield |
Texas Instrs |
TXN |
$31,572 |
11.59 |
10.2 |
-1.90% |
-2.78% |
$27.19 |
1.91% |
Kyocera Cp Adr |
KYO |
$17,965 |
14.25 |
11.36 |
6.68% |
4.87% |
$97.90 |
1.50% |
Marvell Tech Gp |
MRVL |
$7,960 |
9.92 |
8.92 |
-0.90% |
-1.57% |
$13.02 |
0.00% |
Microchip Tech |
MCHP |
$5,939 |
15.9 |
14.45 |
-14.55% |
-13.96% |
$31.18 |
4.44% |
Tdk Corp-Ads |
TTDKY |
$5,914 |
10.61 |
9.32 |
-1.37% |
1.23% |
$45.85 |
0.00% |
Au Optroncs-Adr |
AUO |
$4,193 |
N/A |
35.63 |
-41.05% |
-62.96% |
$4.75 |
1.90% |
Flextronic Intl |
FLEX |
$4,188 |
6.51 |
5.25 |
-5.61% |
0.47% |
$5.66 |
0.00% |
Nxp Semiconduct |
NXPI |
$3,741 |
7.03 |
5.43 |
-12.35% |
-14.63% |
$14.92 |
0.00% |
Freescale Semi |
FSL |
$2,845 |
9.97 |
5.58 |
-1.11% |
-1.76% |
$11.86 |
0.00% |
Vishay Intertec |
VSH |
$1,913 |
6.11 |
6.21 |
-3.32% |
-6.52% |
$11.56 |
0.00% |
Omnivision Tech |
OVTI |
$1,366 |
9.1 |
8.68 |
-0.73% |
-1.12% |
$23.31 |
0.00% |
Mks Instruments |
MKSI |
$1,244 |
9.87 |
12.12 |
-9.81% |
-25.92% |
$23.81 |
2.52% |
Cymer Inc |
CYMI |
$1,232 |
15.77 |
13.3 |
-16.03% |
-17.69% |
$40.37 |
0.00% |
Plexus Corp |
PLXS |
$1,017 |
11.78 |
10.22 |
-2.13% |
-8.79% |
$27.04 |
0.00% |
Diodes Inc |
DIOD |
$891 |
10.46 |
9.17 |
-0.38% |
-0.46% |
$19.69 |
0.00% |
Power Intgratio |
POWI |
$888 |
23.42 |
18.2 |
-16.70% |
-18.64% |
$30.78 |
0.65% |
Benchmark Eletr |
BHE |
$842 |
11.61 |
9.33 |
-8.29% |
-4.13% |
$13.86 |
0.00% |
Ezchip Semi Ltd |
EZCH |
$831 |
36.21 |
23.38 |
-5.43% |
-5.77% |
$31.50 |
0.00% |
Sanmina-Sci Cp |
SANM |
$780 |
6.97 |
5.54 |
4.04% |
4.67% |
$9.69 |
0.00% |
Volterra Semi |
VLTR |
$591 |
26.82 |
16.31 |
2.64% |
1.62% |
$24.05 |
0.00% |
Multi-Fineline |
MFLX |
$503 |
11.51 |
9.47 |
-13.04% |
-13.57% |
$20.87 |
0.00% |
Kemet Corp |
KEM |
$457 |
4.73 |
4.27 |
3.06% |
-0.25% |
$10.36 |
0.00% |
Viasystems Grp |
VIAS |
$438 |
15.25 |
9.6 |
0.00% |
0.00% |
$21.50 |
0.00% |
Magnachip Semi |
MX |
$420 |
6.29 |
5.08 |
-24.33% |
-23.64% |
$10.66 |
0.00% |
Exide Tech |
XIDE |
$411 |
6.46 |
4.67 |
0.00% |
0.00% |
$5.30 |
0.00% |
Hanwha Solarone |
HSOL |
$365 |
5.31 |
4.72 |
-13.54% |
-14.72% |
$4.35 |
0.00% |
Amer Supercon |
AMSC |
$312 |
N/A |
10.81 |
-81.82% |
-8.80% |
$6.16 |
0.00% |
Anaren Inc |
ANEN |
$302 |
16.14 |
N/A |
0.00% |
N/A |
$20.01 |
0.00% |
Integr Sili Sol |
ISSI |
$216 |
7.55 |
5.94 |
3.88% |
-0.37% |
$8.08 |
0.00% |
Mindspeed Tech |
MSPD |
$199 |
89.1 |
16.97 |
-41.18% |
-22.65% |
$5.94 |
0.00% |
Maxlinear Inc-A |
MXL |
$189 |
N/A |
97.17 |
-4137.50% |
-84.75% |
$5.83 |
0.00% |
Srs Labs Inc |
SRSL |
$123 |
23.13 |
14.47 |
0.00% |
0.00% |
$8.25 |
0.00% |
Ultralife Corp |
ULBI |
$85 |
27.39 |
6.94 |
0.00% |
0.00% |
$4.93 |
0.00% |
Transwitch Corp |
TXCC |
$71 |
N/A |
N/A |
0.00% |
0.00% |
$2.42 |
0.00% |
Number 4-Ranked Stocks
Company |
Ticker |
Market Cap ($ mil) |
P/E Using Curr FY Est |
P/E Using Next FY Est |
"%Ch Curr Fiscal Yr Est - 4 wks" |
"%Ch Next Fiscal Yr Est - 4 wks" |
"Current Price" |
Div Yield |
Altera Corp |
ALTR |
$11,735 |
13.94 |
13.16 |
1.16% |
0.84% |
$36.42 |
0.66% |
Linear Tec Corp |
LLTC |
$6,167 |
12.94 |
11.47 |
-12.68% |
-11.72% |
$27.08 |
3.55% |
Stmicroelectron |
STM |
$6,137 |
10.43 |
7.95 |
-43.31% |
-18.73% |
$6.96 |
3.79% |
Lsi Corp |
LSI |
$4,112 |
16.43 |
12.02 |
12.47% |
18.33% |
$6.79 |
0.00% |
Skyworks Solutn |
SWKS |
$3,850 |
12.93 |
10.87 |
2.47% |
-0.79% |
$20.68 |
0.00% |
Aixtron Ag-Adr |
AIXG |
$2,494 |
9.33 |
9.44 |
-11.05% |
-4.51% |
$24.65 |
4.84% |
Avx Corp |
AVX |
$2,161 |
8.64 |
8.44 |
-4.23% |
-3.83% |
$12.70 |
1.73% |
Fairchild Semi |
FCS |
$1,712 |
8.48 |
8.06 |
-2.04% |
-3.98% |
$13.42 |
0.00% |
Hittite Microwv |
HITT |
$1,638 |
19.37 |
17.54 |
-0.37% |
0.07% |
$52.26 |
0.00% |
Intl Rectifier |
IRF |
$1,536 |
9.48 |
8.25 |
-3.13% |
-2.91% |
$22.02 |
0.00% |
Veeco Instrs-De |
VECO |
$1,439 |
7.21 |
8.3 |
-7.05% |
-22.00% |
$35.39 |
0.00% |
Pmc-Sierra Inc |
PMCS |
$1,410 |
10.9 |
9.17 |
1.84% |
-0.43% |
$6.04 |
0.00% |
Semtech Corp |
SMTC |
$1,359 |
13.05 |
11.51 |
1.49% |
-0.05% |
$20.79 |
0.00% |
Triquint Semico |
TQNT |
$1,148 |
12.34 |
10.11 |
-25.11% |
-27.32% |
$6.99 |
0.00% |
Aeroflex Holdng |
ARX |
$1,064 |
11.08 |
10 |
-9.76% |
-7.72% |
$12.55 |
0.00% |
Littelfuse Inc |
LFUS |
$972 |
9.4 |
9.19 |
0.44% |
-1.73% |
$42.78 |
1.40% |
Cirrus Logic |
CRUS |
$906 |
12.19 |
10.05 |
1.79% |
-1.66% |
$13.90 |
0.00% |
Wi-Lan Inc |
WILN |
$875 |
10.96 |
8.77 |
0.38% |
16.43% |
$7.15 |
1.40% |
Ttm Technologie |
TTMI |
$834 |
6.07 |
5.23 |
0.00% |
0.00% |
$10.26 |
0.00% |
Rogers Corp |
ROG |
$778 |
17.13 |
14.05 |
0.98% |
2.97% |
$48.70 |
0.00% |
Power-One Inc |
PWER |
$746 |
7.89 |
6.87 |
-7.60% |
-7.90% |
$7.20 |
0.00% |
Kulicke & Soffa |
KLIC |
$619 |
4.34 |
5.76 |
12.37% |
-5.78% |
$8.60 |
0.00% |
Brooks Automatn |
BRKS |
$608 |
6.34 |
8.15 |
0.00% |
-1.91% |
$9.19 |
0.00% |
Micrel Inc |
MCRL |
$586 |
14.38 |
12.73 |
1.55% |
-2.63% |
$9.42 |
1.49% |
Silicon Image |
SIMG |
$494 |
87.29 |
14.55 |
-58.82% |
-19.23% |
$6.11 |
0.00% |
Fabrinet |
FN |
$491 |
7.39 |
6.99 |
-3.32% |
-9.47% |
$14.37 |
0.00% |
Inphi Corp |
IPHI |
$272 |
33.02 |
17.49 |
-41.59% |
-18.62% |
$10.32 |
0.00% |
Nve Corp |
NVEC |
$263 |
17.78 |
N/A |
-3.13% |
N/A |
$55.12 |
0.00% |
Axt Inc |
AXTI |
$252 |
10.81 |
9.28 |
18.38% |
8.51% |
$7.89 |
0.00% |
Alpha&Omega Sem |
AOSL |
$247 |
7.03 |
5.11 |
-5.88% |
0.00% |
$10.12 |
0.00% |
Iqe Plc |
IQEPF |
$236 |
15 |
15 |
0.00% |
0.00% |
$0.45 |
0.00% |
Stoneridge Inc |
SRI |
$226 |
7.82 |
4.36 |
0.00% |
0.00% |
$8.56 |
0.00% |
Mips Tech Inc |
MIPS |
$216 |
12.36 |
N/A |
0.00% |
N/A |
$4.12 |
0.00% |
Mitek Systems |
MITK |
$192 |
N/A |
14.91 |
N/A |
N/A |
$8.20 |
0.00% |
Pericom Semicon |
PSEM |
$191 |
12.7 |
9.73 |
0.00% |
0.00% |
$7.62 |
0.00% |
Intevac Inc |
IVAC |
$186 |
N/A |
18.64 |
-12.44% |
-25.57% |
$8.14 |
0.00% |
Valence Tech |
VLNC |
$181 |
N/A |
21.27 |
0.00% |
0.00% |
$1.17 |
0.00% |
Dsp Group Inc |
DSPG |
$163 |
N/A |
N/A |
-433.33% |
N/A |
$6.98 |
0.00% |
O2Micro Int Ltd |
OIIM |
$163 |
11.87 |
8.97 |
-4.65% |
-7.27% |
$4.86 |
0.00% |
Neophotonics Cp |
NPTN |
$162 |
65.9 |
17.81 |
0.00% |
0.00% |
$6.59 |
0.00% |
Ddi Corp |
DDIC |
$157 |
6.51 |
5.91 |
-7.53% |
-8.20% |
$7.72 |
5.18% |
Ultra Clean Hld |
UCTT |
$150 |
7.41 |
6.93 |
-23.33% |
-32.62% |
$6.58 |
0.00% |
Towerstream Cp |
TWER |
$145 |
N/A |
25.33 |
0.00% |
0.00% |
$3.42 |
0.00% |
Semileds Corp |
LEDS |
$125 |
N/A |
N/A |
-653.85% |
-231.06% |
$4.57 |
0.00% |
Quicklogic Corp |
QUIK |
$108 |
N/A |
N/A |
-25.00% |
-57.14% |
$2.81 |
0.00% |
Sparton Corp |
SPA |
$89 |
10.12 |
7.07 |
0.00% |
0.00% |
$8.70 |
0.00% |
Vitesse Semicon |
VTSS |
$80 |
N/A |
36.44 |
0.00% |
0.00% |
$3.28 |
0.00% |
Iec Electrs New |
IEC |
$53 |
8.45 |
6.8 |
0.00% |
0.00% |
$5.41 |
0.00% |
Vimicro Int-Ads |
VIMC |
$52 |
N/A |
N/A |
0.00% |
N/A |
$1.50 |
0.00% |
Chyron Corp |
CHYR |
$38 |
N/A |
N/A |
N/A |
N/A |
$2.29 |
0.00% |
ALTERA CORP (ALTR): Free Stock Analysis Report
KYOCERA CP ADR (KYO): Free Stock Analysis Report
TTM TECHNOLOGIE (TTMI): Free Stock Analysis Report
TEXAS INSTRS (TXN): Free Stock Analysis Report
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