Fisher Investments Editorial Staff
Developed Markets, Market Cycles

Chip, Chip, Hooray

By, 09/01/2009

Story Highlights:

  • Technology stocks have broadly outperformed the global market this year.
  • Global semiconductor sales increased in July for the fifth consecutive month—a 5.3% monthly rise helped by sales of consumer products.
  • July's sales gain was shared across geographic sectors, though levels still remain lower compared to the prior year.
  • Increases in demand for goods and already slim inventories could force companies to quickly ramp up production and, in turn, increase demand for raw materials.

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The semiconductor industry should be excited—and we're not just talking about polarized electrons. According to the Semiconductor Industry Association (SIA), global semiconductor sales increased in July for the fifth consecutive month.

July's 5.3% sales gain (about $1 billion) over June was helped by sales of consumer products like netbook PCs and cell phones—suggesting global consumer demand for discretionary goods is picking up again. Once upon a time, semiconductors represented the "new"—bastions of cutting edge technology reserved for the most high-tech and sophisticated products. These days, semiconductors are in just about everything—from radios to computers, toasters to industrial robotics. Their proliferation into everyday life has commoditized them somewhat, but has also made chips excellent indicators of wider economic trends.

Even more encouragingly, the July sales gain was shared across geographic regions. Semiconductor sales rose 5.9% month-over-month in the Americas, 5.3% in Europe, 7.9% in Japan, and 4.3% in Asia Pacific. The SIA president also noted evidence of a return to seasonal patterns, hinting at the industry's recovery. Sales levels still remain lower than a year ago, but importantly, the monthly increases show the industry is gradually improving from lows—that is, recovery. Right now, that counts more than comparisons to pre-recession levels.

As we've previously noted, manufacturers entered the economic downturn with lean inventories which continued to shrink well into the recession. This, coupled with increasing demand for goods, could force companies to quickly ramp up production, and in turn, spur demand for raw materials and other inputs.

The five-month uptick in global semiconductor sales is just one sign of global economic improvement, but could be part of a greater trend demonstrating recovering demand and business activity. For months, Tech stocks have outpaced the market, and here are some fundamental reasons explaining it. Stock prices are often the first to reflect economic reality, not reports and surveys. This has been the case throughout the market recovery since early March, and more is likely to come.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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