This Chip Action Is Stunning

 | Jan 19, 2012 | 2:00 PM EST  | Comments
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On Wednesday, analog chipmaker Linear Technology (LLTC) and programmable-chip powerhouse Xlinix (XLNX) released upbeat results that set off a huge semiconductor rally. Investors scrambled to get in on the action. The sector, which had been left in a lurch since the August floods in Taiwan, roared back to life as both companies said their December results were boosted by stronger demand. Upbeat forecasts for the March quarter had investors dancing in the streets.

Even slumbering giant Texas Instruments (TXN) had its best single day since 2008, jumping 8.5%. Holy cow -- is this the start of some new fantastic trend or just a one-day wonder?

If you go back to mid October, Linear Technology just barely made the low end of first fiscal 2012 estimates. Then, on the conference call, management offered an outlook for the December quarter that was much worse than expected. The company guided revenue down -- between a drop of 9% and 13%. (The Street was expecting a down quarter, but not that bad.)

But it wasn't long afterward that the stock picked up steam as investors thought the worst was over. The shares climbed about 3 points. Since then, it's been a rollercoaster of emotions -- up, down, left, right. Now, the stock is back to its November highs.

For the second quarter, Linear reported revenue of $294.3 million, a decrease of 11% from the previous quarter and a 23% drop from the same period a year ago. Net income sank 19% sequentially and 39% year over year. While the results fell within management's estimates, guidance was upbeat. The company believes revenues will jump between 4% and 8% above second-quarter revenue of $294 million.

I'm cautiously optimistic regarding chip demand, especially when it comes to communications semi names. Instead of buying any of these stocks after a big one-day jump, I would wait. You always get another shot at it. Linear Tech did very well last year, growing revenue by more than 27% in a difficult economy. With an improving environment, it could be time to dial in here.

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