The Future of Semiconductor ETFs

March 27th at 1:00am by Tom Lydon

Semiconductor companies and exchange traded funds (ETFs) are reporting strong earnings for their last quarter, but they may face headwinds as certain factors could impact the industry. [Semiconductor ETFs Power Up.]

Manufacturing plants in Japan have been shut down or scaled back due to the earthquake and tsunami, affecting supply chains around the world.  Nearly 25% of the world’s semiconductor production capacity is in Japan and more than 60% of the silicon wafers that chips are created from are made in Japan, reports Michelle Maisto for eWeek.com.  However, many of the companies hit by disaster in Japan also have manufacturing operation in other locations around the globe.  This makes the impact of the disruption on output still unclear.  Apple’s iPad 2 began shipping to 25 additional countries, even though five components are made in Japan.  This move to expand into more markets shows Apple is confident in the inventories and production of the components. [Semiconductor ETFs: On The Cheap.]

There may even be a supply glut with the launch of iPad 2 around the globe. The product has been a success and will set the bar higher for any other tablet products in the future. Supply could offset demand as the competition intensifies over the near term.

Corporations have cash and they seem to be spending it on technology, as tech companies are reporting better-than-expected numbers.  Oracle (ORCL) is considered a bellwether for tech spending by large corporations and their profits were up 78%.  Micron (MU), a semiconductor manufacturing company, had a 15% jump in second-quarter revenue.

  • iShares PHLX SOX Semiconductor Sector Index Fund (NasdaqGM: SOXX) – up 1.8% in the past 10 days
  • Semiconductor HOLDRs (AMEX: SMH) - up 1.8% in the past 10 days
  • Direxion Daily Semicondutor Bull 3x Shares (NYSEArca: SOXL) - up 5.6% in the past 10 days

For more information on this sector, visit our technology and semiconductor categories.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.