Chip Investors Eye Busy Week

A slew of midquarter reports should give traders some much needed information.

Author:
Publish date:: Sep 6, 2005 1:23 PM EDT

Semiconductor investors began a busy week with a high degree of caution as stocks in the sector have stopped running higher.

"Investors definitely seem interested in protecting themselves from the downside," said Alison Regan, capital markets associate with Susquehanna Financial Group. She noted put buyers and call sellers, especially in the

Philadelphia Semiconductor Index

and the

Semiconductor HOLDRs

(SMH) - Get Report

exchange-traded fund.

Likewise, Bear Stearns noted Tuesday that its trading desk has seen mostly selling action in semiconductor names as investors have abandoned long positions.

News that could create ripples for investors this week include midquarter updates from

Altera

(ALTR) - Get Report

Xilinx

(XLNX) - Get Report

Intel

(INTC) - Get Report

and

Texas Instruments

(TXN) - Get Report

, as well as earnings from

National Semiconductor

(NSM)

The assessment of current demand by these companies will set the tone for trading in coming weeks. Investors haven't had much information to trade on since July, when a barrage of companies announced second-quarter results.

Stocks have drifted since then as oil concerns and Hurricane Katrina have dominated the news flow in past weeks. The SOX hit a one-year peak to begin August but has shed 3% since then. The Semi HOLDRs ETF has tracked a similar pattern.

More notable has been the decline in shares of

Intel

. The world's largest chipmaker announced financial results on July 19 with its shares at $28.71, but the company reported that

its factories were full and it was losing some revenue because it couldn't make enough chips. Shares have dropped 11% since.

But it hasn't been all bad in the sector.

Texas Instruments

reported

a solid second quarter with strong order rates and better-than-expected third-quarter projections. Shares have risen 8.2% since that report to $33.12, within striking distance of a 20-month high.

Chip investors benefited from May through July on hopes that a strong first half of the year would carry over into the back half. Investors

didn't get that indication and shares drifted because of it. This week is the next opportunity for shares to step higher but investors aren't so willing this time around to bet on gains ahead of fundamentals.