Tuesday’s Intel (INTC) earnings blowout was just the catalyst buyers needed to get back into techs in a big way. The better-than-expected numbers reported by the semiconductor titan just may be one of those so-called “green shoots” investors have been waiting for.
The chip-maker’s compelling Q2 results appear to confirm the notion that computer sales are picking up faster than had been expected by many on Wall Street. Fortunately, Intel’s good quarter didn’t surprise me very much, and that’s because I had a little “intel” on Intel, courtesy of the ChangeWave Alliance Research Network.
According to the most recent ChangeWave Alliance survey of U.S. corporate IT spending trends, after months of being on the downward slope, spending in the tech sector is now rapidly stabilizing. Perhaps more importantly, the survey also showed a dramatically improved outlook for IT spending in Q3.
This is exactly the kind of turnaround we look for to signal a buying opportunity in this sector. See expert analysis of This Week’s 5 Most-Anticipated Earnings Reports.
According to the measure of IT industry insiders, just 24% said their company’s IT spending will decrease, or that there will be no spending at all for the third quarter. This number represents a major improvement since the previous survey in February. Another 15% of respondents said their company’s IT spending will actually increase. This is also a solid improvement, and, most importantly, the first recorded uptick in a ChangeWave survey in two-and-a-half years.
Based on these results, we could be in for a protracted upswing in IT spending, as we head into the back half of 2009. That upswing would also likely add fuel to the fiery uptrend in the share prices of not just Intel, but other semiconductor firms such as Altera (ALTR), Analog Devices (ADI), Applied Materials (AMAT), Broadcom (BRCM), KLA-Tencor (KLAC), Linear Technologies (LLTC), National Semiconductor (NMSI), Texas Instruments (TXI), Xilinx (XLNX), et al.
Consumer PC Spending Down, But One Bright Spot Emerges
Now, we do have one fly in the ointment here, and that’s our research on consumer PC purchasing. According to the latest Alliance measure, spending on PCs is leveling off among consumers. A total of 8% of respondents report they plan to buy a laptop over the next 90 days, and just 4% say they plan to buy a desktop. This is exactly the same percentages we saw in our April survey.
Despite the flat laptop and desktop numbers, the saving grace for consumer PC purchasing could be the rising popularity of so-called “netbooks,” i.e., those mini-laptops that retail for less than $500. According to the Alliance, one-in-four planned purchasers (24%) now say they’ll buy a netbook computer over the next 90 days, 1 point higher than in April and a full 10 points higher than the January measure.
I suspect that if manufacturers can improve the speed and performance of netbooks, sales of these mini-PCs will really start to skyrocket. And that, along with the resurgence in corporate IT spending going forward, will translate into more juice for semiconductor stocks.
Three Ways to Play the Semiconductor Sector Now
There are three ways for investors to play the semiconductor sector right now: You can either:
- Buy Intel shares directly;
- Buy the Semiconductor HOLDRs (SMH), an ETF with exposure to the entire semiconductor sector; or
- For the most intrepid souls, you can buy the Ultra Semiconductor ProShares (USD), a two-beta leveraged fund designed to move twice as fast as SMH.
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