Semiconductor ETFs in Focus on Intel Earnings Beat

Zacks

Intel (INTC), the largest chip maker in the world, reported solid Q3 results after the market closed yesterday. The company reported earnings of 58 cents per share, a nickel ahead of the Zacks Consensus Estimate and unchanged form the year-ago quarter.
 
Revenues were also flat year over year at $13.5 billion, but inched past the Zacks Consensus Estimates of $13.46 billion.
 
The better-than-expected results came as a surprise amid the continued slump in global PC demand. This reverses the recent trend of negative earnings surprises by Intel over the past two quarters, leading some to believe that the slump is over for the chip giant (read: Top Ranked Tech ETF for Q3 Earnings Season).
 
Outlook Remain Sluggish
 
While Intel is enjoying business growth from selling chips used in data center equipment, the uncertain PC market continues to be a major concern for the near term. More than 60% of the company’s total revenue comes from this market which is seeing reduced shipments. Worldwide PC sales fell 8.6% year over year in Q3 according to the latest report from Gartner. 
 
Further, the company delayed the launch of the next generation PC chip processors – Broadwell – by a quarter due to a technical glitch. The tablet chip – expected to boost earnings – was previously scheduled for a fourth quarter launch.
 
Based on lower PC sales and new chip delay, Intel reduced its revenue outlook from $14 billion to $13.2–$14.2 billion for the fourth quarter.
 
Market Impact
 
Intel shares initially climbed nearly 1% in after hour trading on better-than-expected results but were unable to sustain the rally due to a weak outlook. INTC shares fell roughly 2% in extended trade after the close at $23.39 on Nasdaq, on moderate volume.
 
ETFs to Watch
 
The sluggish trading could have a huge impact on semiconductor ETFs that are heavily invested in this enormous semiconductor company. Below, we have highlighted three ETFs with the highest allocation to INTC that could be big movers post Intel earnings.
 
Investors should closely monitor the movement in these funds and could catch the opportunity from any surge in the INTC price, or avoid them if INTC looks to be dragging them down to close out the year (see: all the Technology ETFs here):
 
Market Vectors Semiconductor ETF (SMH)
 
This is easily the most popular ETF in the semiconductor space with AUM of $268.1 million and average daily volume of roughly 1.6 million shares. The fund provides concentrated exposure to 26 securities by tracking the Market Vectors US Listed Semiconductor 25 Index.
 
Intel occupies the top position with 18.6% of assets. While U.S. firms dominate the fund holdings at 72.4% of assets, Taiwan (13.4%), the Netherlands (5.6%) and United Kingdom (5%) round off the next three spots in terms of country exposure. The fund charges an expense ratio of 0.35%.
 
The fund gained about 2.3% over the past five-day period and 26% in the year-to-date time frame. The product has a Zacks ETF Rank of 3 or ‘Buy’ rating with a ‘Medium’ risk outlook (read: Time to Buy This Top Ranked Semiconductor ETF?).
 
iShares PHLX Semiconductor ETF (SOXX)
 
This ETF follows the PHLX Semiconductor Sector Index and offers exposure to 31 firms. The fund has amassed $237.9 million in its asset base while trades in volume of more than 170,000 shares a day. The product charges a higher fee of 48 bps a year from investors.
 
Here again, INTC takes the top spot at 7.81% of total assets. The fund added nearly 2% in the past five trading sessions and is up nearly 31% so far this year. SOXX currently has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘High’ risk outlook.
 
First Trust NASDAQ technology Dividend Index Fund (TDIV)
 
Beyond the pure semiconductor space, investors should note that tech dividend ETFs could see some volatile trading in the days ahead thanks to INTC. One such fund is TDIV which provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index (read: 3 Internet ETFs Leading the Tech World Higher).
 
In total, the fund holds about 87 securities in its basket. Of these firms, INTC takes the first spot, making up roughly 8.11% of the assets. In terms of industrial exposure, the fund allocates one-fourth portion in semiconductors and semiconductor equipment, followed by software (14.7%), and computer and peripherals (14.2%).
 
The product has amassed about $216.3 million in its asset base while charges 50 bps in annual fees. Volume is moderate as it exchanges 92,000 shares per day .The fund returned over 21% so far this year and added nearly 3% in the past five-day period.
 
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