ETF Research and Analysis
by John GabrielSuitability
SPDR S&P Semiconductor XSD offers relatively diverse exposure to an equally weighted portfolio of 25 microchip stocks. Some investors might look to this ETF as a way to make tactical bets on the semiconductor industry's deep cyclicality. Read more
SPDR S&P Semiconductor XSD offers relatively diverse exposure to an equally weighted portfolio of 25 microchip stocks. Some investors might look to this ETF as a way to make tactical bets on the semiconductor industry's deep cyclicality. Read more
Bull Case
Industry bellwether Intel reported strong third-quarter results, as demand for microprocessors continued to improve. The firm's fourth-quarter outlook was even more impressive, as management expects revenue to roughly reach pre-downturn levels.
Catalysts could come from new "killer" applications, such as flash memory, which spurred a whole round of capital investments from memory makers in 2006, or just an increase in global chip demand that requires chipmakers to spend heavily on chip equipment after a prolonged period of underinvestment.
If capacity utilization rates continue to increase in a sustainable manner, chipmakers will likely have to increase capital spending at some point.
Read moreBear Case
Chipmakers' improved revenue and business outlook is partly attributable to continued chip inventory replenishment across the various electronics supply chains. If optimistic expectations fail to materialize in the coming months or quarters, then the industry could be headed for another slump.
The firms that the fund owns are a volatile lot given the jarring pace of technological change in the chipmaking business and the cyclical nature of end-market demand. That explains why we'd need a moderately large margin of safety to invest here.
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