Skip to main content

Earnings Reports Play on Semiconductor ETFs

Three semiconductor companies' earnings reports this week will have an impact on Semiconductor HOLDRs.
  • Author:
  • Publish date:

NEW YORK (TheStreet) - Three companies in the semiconductor sector are reporting earnings this week, and this will have an impact on Semiconductor HOLDRs (SMH) - Get VanEck Semiconductor ETF Report.

Intel Corp.

(INTC) - Get Intel Corporation Report

will be issuing their earnings report for the latest quarter on Tuesday after the market closes, along with

Linear Technology Corp.



Later in the week,

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

will report their first quarter earnings on Thursday after the market closes.

Anyone who has ever looked at the sticker on their computer indicating the company that makes the processor has likely heard of Intel, which sells parts for a multitude of various electronic devices. The company's chips power three quarters of the PCs in the world.

Although not as famous, LLTC also makes components for electronics such as cell phones, cameras, computers, and GPS systems, among other things. AMD is only slightly smaller by market capitalization but has a narrower focus and sticks to mainly providing parts for home computers, office servers and video game consoles.

In comparison, INTC's market capitalization is roughly 20 times that of LLTC or AMD.

Among the semiconductor sector ETFs with exposure to these three companies, SMH allocates the greatest amount of net assets to INTC, AMD and LLTC. INTC accounts for 23.8% of SMH, while LLTC and AMD account for 5.1% and 1.3%, respectively.

However, earnings in this sector can be an unpredictable foundation on which to base an investment decision. For instance, last quarter, INTC reported very well but shares lost value on the day. It can happen that general market sentiment, financial news, or expectations of what earnings should be for a company will have a larger impact on shares when they issue their quarterly report than the strength of the report itself.

Scroll to Continue

TheStreet Recommends

Hopes are again high this earnings session for Intel to beat expectations and for the semiconductor sector to report well because the industry has seen strong demand over the course of the quarter.

However, hardware demand in the latter part of the year is also expected to remain strong. ETF Investors looking beyond an earnings play for this week should look to

iShares S&P North American Technology-Semiconductors Index Fund



SMH provides the most exposure to INTC, LLTC and AMD, but for a more balanced approach to other companies in the semiconductor sector as a whole, IGW is a better fit.

In IGW, INTC accounts for 8.4%, while LLTC and AMD account for 3.1% and 2.5%, respectively. In total, this represents a 14.0% allocation to the three companies.

Another option for investors who are interested in semiconductors, but want an even more egalitarian approach in the sector, is

SPDR S&P Semiconductor ETF

(XSD) - Get SPDR S&P Semiconductor ETF Report

. The fund's combined allocation to INTC, LLTC and AMD is 12.3%, but each company receives an equal 4.1% allocation.

Investors interested in semiconductors have another option for exposure to the sector in

PowerShares Dynamic Semiconductors

(PSI) - Get Invesco Dynamic Semiconductors ETF Report

, but its low daily trading volume gives it less than ideal liquidity. PSI's allocation to the companies reporting earnings this week is also less than IGW's or XSD's, so the fund is also a poorer choice for using this week's reports from companies in the sector as an entry point.

Semiconductor earnings this week are expected to be strong. Investors who want to bet that these reports will be strong enough to impress the markets can choose SMH. Investors who want to play the forward looking strength of the industry and also potentially benefit from the earnings reports from INTC, LLTC and AMD this week can choose IGW or XSD depending on the allocation strategy that they prefer.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.