Chip Foundries Forging a Tech Rally

This column was originally published on RealMoney on July 13 at 10:46 a.m. EDT.

Bears all over me this morning on my tech thesis. Bears in the rearview mirror, bears clawing on the windows, knocking down the doors: "Jim, if tech's back, why aren't the semiconductor-equipment stocks moving? Huh? Huh?"

Oh, give me a break.

They move last.

This morning the bears are breathing a huge sigh of relief because ASML(ASML Quote) reported crummy orders. Ignore the earnings; the orders show the future, they say. Bears want to take that piece of information and hold it as a cudgel, letting us know that no tech rally is bona fide without the ASMLs and Novellus(NVLS Quote), KLA-Tencor(KLAC Quote) and Applied Materials(AMAT Quote).

To me these are yesteryear stocks, but I recognize that without them moving we are forever going to be under siege about whether the tech rally is for real.

I say, hold on. You are looking through the rearview mirror with ASML's orders. You should be looking at semiconductor foundry utilization. That's what will predict order growth, not ASML's statements.

There, the news is all good. I use Taiwan Semiconductor(TSM Quote), the biggest foundry out there, as my barometer for the future, and that's flashing green, not red. TSM's utilization was 78% in the March quarter and 84% in the June quarter, and with wafer starts up significantly in September (my prediction, but it should come true, judging by what we are seeing in the end technology markets, think Best Buy), you could get mid-90% utilization by the fall.

And that's when they will order!

Remember, I am not waiting for the tech good news to occur. I am anticipating the good news. If you don't anticipate the tech rally, you miss it.

The real story this July is the continued strength in Intel(INTC Quote) and Samsung, the big guns in semis. That will yield the good news that needs to be anticipated now.

Don't wait for the orders to turn up. That's a sucker's game.

Act now. Use the ASML weakness to buy, not sell.

Random musings: Uh oh, I don't care how long Ebbers gets. Can't make money off it. ... The action in IBM(IBM Quote) and Symantec(SYMC Quote) is pure catch-up, but I wouldn't fight it; the darned stocks are now working. So's McAfee(MFE Quote).

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