Archive: Semiconductors

CNBC Bonus Bucks Trivia: Short Seller Trivia: In the May 1 “Market Insider” blog, which green stock did shorts want badly?

Short Seller Trivia: In the May 1 “Market Insider” blog, which green stock did shorts want badly?

There is also interest by short sellers in Canadian Solar (CSIQ) and SunPower (SPWR) and they were in the top 10 stocks being sought this week, says John Tabacco, ceo of Locatestock.com.

Disclosure: At time of publication, William Trent has no financial position in Canadian Solar (CSIQ) or SunPower (SPWR).

Topics: Canadian Solar (CSIQ), SunPower (SPWR) | No Comments

WFR: MEMC’s Problems Continue

MEMC (WFR) reported first quarter net sales of $501.4 million versus fourth quarter 2007 net sales of $535.9 million and first quarter 2007 net sales of $440.4 million. Non-GAAP diluted EPS, excluding warrants, was $0.84 per share, compared to the consensus analyst estimate of $0.85.

As previously disclosed, the impact associated with the accelerated chemical deposit buildups at the company’s Pasadena, Texas polysilicon manufacturing facility was the primary factor contributing to the sequential reduction in volumes, revenue and gross margin.

The problems in Pasadena continued after yesterday’s report. “The company reported that at approximately 4:20 PM this afternoon a transfer line from a transport vehicle developed a leak and caused a release of STF, a raw material gas used in the manufacturing process. The leak was quickly contained by the on-site emergency response team and the flow of material was stopped. At this time the company does not believe there was any offsite impact from the release due to the quick dissipation of the material in the atmosphere. Approximately 18 people were transported to area hospitals for further evaluation and/or treatment.”

During the first quarter, the company generated operating cash flow of $197.2 million, compared to $238.5 million in the 2007 fourth quarter. Capital expenditures for the first quarter totaled $81.9 million, or 16.3% of sales. The resulting lower trailing 12-month free cash flow yield curbs my enthusiasm for WFR shares.

“Although we are pleased with the results of the actions we have taken to address the issues that caused the lower than targeted polysilicon volume in the first quarter, given the unplanned issues that were encountered with our expected polysilicon ramp in the first quarter, we feel it is prudent to be extra cautious regarding our polysilicon output expectations in the second quarter. As a result, we are targeting revenues of approximately $540 to $570 million for the second quarter. In addition, we are targeting gross margin of approximately 54%-55%, with operating expenses of less than $40 million,” added Gareeb.
The consensus sales estimate for next quarter was $566 million.

The stock is looking to open down today, but I think if it can maintain above its 200-day moving average it will signal that investors continue to view the disruptions as temporary. Below the 200-day moving average, I’d say all bets are off.

Disclosure: At time of publication, William Trent holds no financial position in the companies mentioned in this article.

Topics: MEMC Electronic Materials (WFR) | No Comments

The Case for the Semiconductor Rally to Continue

My latest column is up at RealMoney. In it, I explain why I think the recent rally in semiconductor stocks should continue.

First, as I have mentioned before, the supply/demand balance remains favorable.

Second, pricing power appears to be improving, based on the most recent PPI report.

I think the names that will perform best are those whose gross margins are currently depressed, as improving margins would result in accelerating earnings power.

Disclosure: At time of publication, William Trent holds shares of SMH and MXIM, as well as put options against the shares of LRCX.

Disclosure: William Trent has a long position in SMH.

Topics: Altera (ALTR), Cypress Semiconductor (CY), Intel (INTC), Marvell Technology (MRVL), Micron Technology (MU), ProShares Ultra Semiconductors (USD), Semiconductor HOLDRS (SMH), Semiconductors | No Comments

WFR: Can Tight Polysilicon Supply Really Result in Lower Prices?

According to Digitimes, Polysilicon spot price drops 20% in two weeks:

Most industry players buy expensive polysilicon because they have scrap materials to mix with it, the sources explained. Most of these scrap materials are sourced from semiconductor companies, with overall volume being very limited. The brisk demand from the solar sector has also led to a surge in the price of scrap materials from US$100-200 per kilogram in 2006 to US$200-300 per kilogram in 2007. The average price of scrap materials currently is above US$300 per kilogram.

Tight polysilicon supply, combined with favorable long-term contracts with solar players, is a key reason MEMC Electronic Materials (WFR) is my favorite semiconductor play. I think the current situation, where the price went so high as to actually reduce demand, will be short-lived. Longer term, the supply and demand will meet at a clearing price. As long as the price is a solid one, MEMC should benefit.

Disclosure: At time of publication, William Trent has no position in the companies mentioned.

Disclosure: William Trent has a long position in SMH.

Topics: MEMC Electronic Materials (WFR) | No Comments

FSLR: Advances in Solar Technology Favor Nanosolar over First Solar

According to Renewable Energy World, researchers at the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) announced that they have moved closer to creating a thin-film solar cell that can compete with the efficiency of the more common silicon-based solar cell. The Copper Indium Gallium Diselenide (CIGS) thin-film solar cell recently reached 19.9% efficiency in testing at the lab, setting a new world record, according to NREL.

The CIGS technology, used by privately held Nanosolar, differs from the Cadmium Telluride in use by First Solar (FSLR). Amorphous silicon and cadmium telluride currently account for 95% of the thin-film panels made, according tot the Department of Energy.

While it is likely that the various technologies will leapfrog each other over time, the latest study will doubtless help Nanosolar in its ongoing quest for capital.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned.

Topics: First Solar (FSLR) | No Comments

WFR: MEMC to Miss Earnings Estimates

MEMC Electronic Materials (WFR)  reported that during the first quarter it experienced accelerated buildup of chemical deposits inside the new expansion unit (”Unit 3″) at its Pasadena, Texas facility and delayed maintenance on its other two units as a result. The combination of these items caused the utilization of the Pasadena facility to be approximately 20% lower than the fourth quarter, resulted in much lower than anticipated output, and caused the company to not achieve the financial targets for the first quarter as disclosed on January 24, 2008.The company now anticipates revenue for the first quarter will be approximately $500 million with gross margin of approximately 52% and operating expenses of approximately $42 million. This compares to the company’s previously announced targets of $560 million in revenue with gross margin of approximately 54.8% and operating expenses of approximately $42 million.

To me, this does not affect the long-term prospects for MEMC a bit. It does, however, illustrate that there are always risks to doing business. Many of these risks are not fully anticipated by investors.

If MEMC is riskier than investors previously thought, the stock decline is simply a result of applying a more appropriate discount factor for risk. If investors were close to the correct risk premium in previous estimates, I would expect the price to recover quickly.

Either way, it would not affect my own willingness to hold the stock, as I tend to believe these things happen more often than most people expect.

Topics: MEMC Electronic Materials (WFR) | 1 Comment

SEMI Equipment Orders Too Strong For My Taste

North American-based manufacturers of semiconductor equipment posted $1.23 billion in orders in February 2008 (three-month average basis) and a book-to-bill ratio of 0.93 according to the February 2008 Book-to-Bill Report published today by SEMI.

The three-month average of worldwide bookings in February 2008 was $1.23 billion. The bookings figure is about eight percent greater than the final January 2008 level of $1.14 billion, but 12 percent less than the $1.40 billion in orders posted in February 2007.

With semiconductor sales essentially running flat, I was able to take solace in the fact that the steeper declines in semiconductor equipment orders were a signal that excess capacity was being soaked up. In fact, semiconductor sales have now likely outstripped orders for new manufacturing equipment for each of the last 12 months.

Unfortunately it hasn’t yet helped semiconductor manufacturers. The SOX index has lost a quarter of its value over that same time period.

If semiconductor manufacturers want to get their stocks’ mojo back, the last thing they should be doing is ordering more capacity in the face of an economic slowdown.

Disclosure: At time of publication, William Trent owns shares of Maxim (MXIM) and the Semiconductor HOLDRS (SMH). He holds put options against the shares of LAM Research (LRCX).

Disclosure: William Trent has a long position in SMH.

Topics: Lam Research (LRCX), Maxim Integrated Products (MXIM), Semiconductor HOLDRS (SMH) | 1 Comment

OVTI: Zooming in on Omnivision

My latest RealMoney column is up, on Omnivision (OVTI). You can get the full story at their site, but in summary:

OmniVision derives 70%-80% of sales are derived from the camera cell phone market. Recent trends in the handset market suggest there could be some bumps in the road ahead. Handsets have been selling like hotcakes, but recent cooling signs have emerged.

In a tougher handset market, I’d also expect a tougher pricing environment for OmniVision and its peers. Competitors in the market for CMOS image sensors include MagnaChip, Micron (MU - Annual Report) , Samsung, Sony (SNE - Annual Report) , ST Microelectronics (STM) and Toshiba. The company also faces competition from the makers of CCD chips, which have typically represented the higher-end products.

Still, I like the recent trend in OmniVision and the potential for expanded interest among value investors in coming months. With appropriate protection (such as tight trading stops), it might be worth taking a risk in the name.

Alternatively, the April $17.50 puts are $0.80 as I write this. Writing the puts would offer either a 4.5% five-week yield on the money risked, or a more attractive entry point of $16.70 should the options be exercised.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned.

Topics: Micron Technology (MU), Omnivision (OVTI), STMicroelectronics (STM), Samsung Electronics (SSNLF.PK), Sony (SNE) | No Comments

FSLR: Is Nanosolar worth $2 billion?

Rumor: Nanosolar worth $2 billion, Solyndra $1 billion | Green Tech blog – CNET News.com

According to sources, Nanosolar is telling investors it will have a valuation, after another round of funds, of around $2 billion. Solyndra says it is worth $1 billion. Not bad for companies with combined current revenues at the moment that probably would have difficulty rivaling the take of a reasonably located convenience store. Nanosolar just started shipping a few solar cells to customers at the end of 2007, and Solyndra is ramping up toward production.

$2 billion would be in line with the value First Solar (FSLR) was assigned at the time of its IPO. First Solar, however, was profitable and had $134 million in annual revenue at the time. Clearly investors are now more aware of the potential growth in solar companies.

I haven’t looked closely enough at these companies to hazzard a guess as to whether they are actually worth it.

Disclosure: At the time of publication, William Trent has no financial position in the companies mentioned.

Topics: First Solar (FSLR) | 1 Comment

Semiconductor Sales Flat, But Excess Capacity Being Soaked Up

The Semiconductor Industry Association released the January semiconductor sales report today.

Worldwide sales of semiconductors in January were $21.5 billion, a nominal increase of 0.03 percent from January 2007, the Semiconductor Industry Association (SIA) reported today. Sales declined by 3.6 percent from December 2007 when the industry reported sales of $22.3 billion. SIA said the sequential decline in sales was in line with traditional seasonal patterns for the industry.

“Virtually all product lines and all geographic markets experienced slightly lower sales in January,” said SIA President George Scalise.

The good news, as I see it, is that orders for semiconductor manufacturing equipment were down 22.3% in January.  Less equipment means less capacity, and even the same amount of sales generation will soak up the excess and improve the pricing environment.

The semiconductor sales growth has exceeded semi equipment order growth since March 2007, so it is now likely to start showing up in the fundamentals. Yes, a general economic slowdown will make it harder for semi pricing to improve. But as long as the supply continues to grow at a slower rate, the semi cycle will return regardless of what happens in the business cycle.

Disclosure: William Trent is long SMH and MXIM, and has written put options against shares of LRCX.

Disclosure: William Trent has a long position in SMH.

Topics: Lam Research (LRCX), Maxim Integrated Products (MXIM), Semiconductor HOLDRS (SMH) | No Comments