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Semiconductor ETFs Surge on Impressive Q3 Earnings

Sweta Killa

Semiconductors have dragged down the broader technology sector for the most part of this year. But the recent wave of acquisition talks and a spate of strong earnings reports from some industry players have reversed this trend, pushing the chip stocks higher in recent weeks.


In particular, most of the well-known industry players like Micron Technology (MU), Texas Instruments (TXN), Intel (INTC) and Broadcom (BRCM) have managed to either beat or meet their Zacks Consensus Estimate on earnings, spreading an air of optimism into his corner of the technology sector. Revenues are also encouraging with all but Micron Technology beating the estimates (read: Time for Semiconductor ETFs?).


Let’s dig into the individual performances:


Semiconductor Earnings in Focus


Though the earnings results was not encouraging, Micron Technology was the major gainer in the industry as the stock has climbed over 12% to date post earnings announcement on October 1, after the close of the market. The memory chipmaker reported adjusted earnings of 37 cents per share, in line with the Zacks Consensus Estimate while revenues of $3.60 billion were slightly below our estimate of $3.67 billion. The company guided revenues in the range of $3.35–$3.60 billion and earnings per share of 20–26 cents for the ongoing first quarter of fiscal 2016. The Zacks Consensus Estimate at the time of earnings release was pegged at $3.75 billion for revenues and 48 cents for earnings per share.


Texas Instruments climbed nearly 9.3% since the earnings announcement on October 21, after the closing bell. The company topped our earnings estimate by nine cents and revenues by $140 million. For the ongoing fiscal fourth quarter, it expects revenues in the range of $3.07–$3.33 billion and earnings per share of 64–74 cents. The midpoint of both is better than the Zacks Consensus Estimate of $3.12 billion and 62 cents, respectively, at the time of issuing the guidance.


Shares of Intel, the world’s largest chipmaker, have moved up nearly 5.7% to date post earnings announcement on October 13, after the closing bell. The company continued its winning streak of beating earnings for the seventh consecutive quarter and topped our revenue estimate as well. It posted earnings per share of 64 cents on revenues of $14.47 billion that easily surpassed the Zacks Consensus Estimate of 59 cents and $14.23 billion, respectively. The company expects revenues in the range of $14.3–$15.3 billion for the ongoing fourth quarter, the mid-point of which is approximately in line with our current estimate.


The wireless chipmaker BRCM also topped our estimates on both the top and the bottom lines. Earnings per share came in at 77 cents on revenues of $2.19 billion, trumping the Zacks Consensus Estimate by 4 cents and $45 million, respectively. The company didn’t issue any guidance as it is in the process of being acquired by Avago Technologies (AVGO) for $37 billion, which is expected to close in the first quarter of calendar 2016. Shares of BRCM are relatively flat since the earnings announcement on October 26, after the market closed (read: Semiconductor ETFs Surge on Avago - Broadcom Deal).   


ETFs in Focus


Impressive performances of these chipmakers have pushed the semiconductor ETFs higher over the past one month. Investors seeking to ride out the surging space in a diversified way could consider the following ETFs. All these funds have a Zacks ETF Rank of 3 or ‘Hold’ rating.


iShares PHLX Semiconductor ETF (SOXX)


This ETF follows the PHLX Semiconductor Sector Index and offers exposure to 30 domestic firms. It is highly concentrated on the top 10 firms with 59.2% share, and INTC and TXN occupy the top two positions. Two-thirds of the portfolio is dominated by large cap stocks while mid caps take the remainder, with just 9% going to small caps. The fund has amassed $425.6 million in its asset base and trades in solid average volume of roughly 590,000 shares a day. The product charges 47 bps in fees a year from investors and has gained nearly 11.2% over the past month.


Market Vectors Semiconductor ETF (SMH)


This fund provides exposure to 26 securities by tracking the Market Vectors US Listed Semiconductor 25 Index. Of these, three firms – Intel, Taiwan Semiconductor Manufacturing (TSM) and Qualcomm Inc. (QCOM) – dominate the fund’s return with a combined 41% of total assets while other firms hold no more than 5.21% share. From a market cap look, the product focuses on large cap stocks, as these account for about 83% of the portfolio. The product has managed assets worth $345.8 million and charges 35 bps in annual fees and expenses. It is heavily traded with volume of around 4 million shares per day and is up 9.4% in the trailing one-month period.


SPDR S&P Semiconductor ETF (XSD)


This fund tracks the S&P Semiconductor Select Industry Index, holding 48 stocks in its portfolio. It is widely spread across a number of securities as none of these allocates more than 3.92% of the assets. The product has a definite tilt toward small cap stocks at 65% while the rest is evenly split between the other two market cap levels. The fund is less popular with AUM of $144.6 million and average daily volume of more than 156,000 shares. It charges 35 bps in fees per year and surged 14% in the same period (see: all the Technology ETFs here).


PowerShares Dynamic Semiconductors Fund (PSI)


This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in the basket with none holding more than 5.68% of assets. Here again, the ETF is skewed toward small caps at 49% while large caps and mid caps account for 39% and 13%, respectively. The product, with AUM of $61.1 million is often overlooked by investors and hence sees a lower average daily volume of 31,000 shares. Expense ratio came in at 0.63%. PSI added 8.7% in the same time period.

 










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ISHARS-PHLX SEM (SOXX): ETF Research Reports
 
MKT VEC-SEMICON (SMH): ETF Research Reports
 
SPDR-SP SEMICON (XSD): ETF Research Reports
 
PWRSH-DYN SEMI (PSI): ETF Research Reports
 
INTEL CORP (INTC): Free Stock Analysis Report
 
MICRON TECH (MU): Free Stock Analysis Report
 
TEXAS INSTRS (TXN): Free Stock Analysis Report
 
BROADCOM CORP-A (BRCM): Free Stock Analysis Report
 
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