TXN: Not All Semiconductors Stocks Were Created Equal in 2011

by Dan December 5, 2011 2:51 pm • Commentary

New Trade TXN: Thursday night after the close TXN will issue its mid quarter update which many would expect the company to tighten the range a bit to the low end of their Q4 guidance back in Oct.  TXN held an analyst meeting a couple weeks back to give the street an update on the integration of their NSM acquisition.  Reading though a few analyst reports coming out of the meeting most on the street felt that things were on track and their commentary regarding their wireless division focus on diversification from their past reliance on NOK.  The company highlighted design wins in the smartphone space in the Samsung Galaxy S2, the Droid RAZR and in the tablet space in the  Amazon Fire (which TechCrunch suggests could sell close to 4million units in this qtr).

All that said, given the stocks recent 9% rally in 6 trading days I want to make a low premium bet that the company will issue Q4 guidance worse than  many expect.  So here’s the trade:

TRADE: TXN (30.30) Bought the DEC 30/28/26 Put Fly for .36

-Bought 1 Dec 30 Put for .62

-Sold 2 Dec 28 Puts for a total of  .32 (.16 each)

-Bought 1 Dec 26 Put for .06

Break-Even On Dec Expiration:

Profits Btwn 29.64 and 28 make up to 1.64 with max gain at 28…..profit traisl off btwn 28 and 25.36

Losses btwn 30 and 29.64 of up to .36, losses btwn 26 and 26.36 of up to .36 with max loss of .26 below 26.00 and above 30.00.




Original Post Dec 5th 2011: Not All Semiconductors Stocks Were Created Equal in 2011: Shorting ‘Best Of Breed”

Semiconductor stocks have been one of the most divergent groups within Technology stock universe this year.  The SOX is down about 31% ytd, while the Nasdaq is basically flat on the year.  There is also a signifgant divergence within the SOX where stocks like INTC ( ~9.5% of the index) is up almost 20% ytd, while stocks like BRCM are down about 30% ytd with a weighting of about 6.5% of the index. In fact out of the top 10 stocks in the index that make up about 57% of the Index of 30 stocks, only 4 are up in a meaningful manner.

The chart below shows the haves and the have nots within the SOX, INTC one of the few stocks up more than 5% in the entire index, while once high flier BRCM is down close to 30%.

SOX vs INTC vs BRCM 1 yr chart from Bloomberg


I think something has to give in INTC and feel that there is a decent chance due to weakness in Europe and a slowing economy in China that INTC may need to back off on their Q1 guidance as Q45 might have been a tad worse than they gave guidance in mid Oct.  INTC has confirmed its Q4 reporting date for Jan 19th which falsl in Jan expiration, but I think there is a decent chance they could actually pre-announce negatively if December proves to fall flat for orders which the disruption in Europe could clearly cause.  Up until a couple years ago INTC used to hold mid quarter updates this week of the quarter, they don’t anymore but any disappointment out of TXN”s mid qtr update this Thursday afternoon could cause some weakness across the space.

TRADE: INTC ($25.05) Bought the Jan12 24/22.5 Put Spread for .35

-Bought 1 Jan12 24 Put for .65

-Sold 1 Jan12 22.5 Put at .30

Break-Even on Jan12 Expiration:

-Profits btwn 23.65 and 22.50 make up to 1.15 (or a little more 3x your money),  22.5 or below make full .35

-Losses bwtn 23.54 and 24 lose up to .35, and above 24.00 lose all .35 or ~1.5% of the underlying.

Technically the stock is trading at levels not seen since before the start of the financial crisis and I am not sure that even its earnings multiple of 10x can support the expected 5% sales and earnings growth next year.

The stock has tried now on 3 occasions of late to get through the $25 level and on the last 2 the stock was met with sell offs of 5 and 10% respectively.  I don’t believe INTC can continue to hold the inevitable collapse of the SOX.

3 YR INTC chart from Bloomberg