Could the nascent tech rally that began with the spectacular earnings from Applied Materials (AMAT) gather strength here?
That amazing conference call from the semiconductor equipment manufacturer at first went overlooked. The semiconductor stocks have been down so long that nobody seemed to care at all.
The only pulses in tech going into that quarter were from Salesforce.com (CRM) with an excellent quarter -- but remember that whatever's good for Salesforce tends to be bad for everyone else, given that it is a cloud-based disrupter of traditional enterprise information technology spending -- and from Cisco (CSCO), but the networking company is taking share from others in its business, so shareholders of Cisco were thrilled there was no read-through or pin action to other companies.
Applied Materials had the exact opposite effect from that of Cisco or Salesforce. It talked about how semiconductor orders for all kinds of chips have been coming in hot, particularly flash chips being used for storage in the cloud. It was a remarkable call in so many ways, including the fact that the company is seeing a dramatic pickup in orders from China.
AMAT matters because it doesn't get a lot of orders if there is no demand for the massive number of devices that semis go into. But it's pretty clear that the semiconductor companies are feeling a lot better about their prospects even if many of the chip companies in China may be making devices that stay in China.
Still, the quarter put into prospective the idea that there could be something else besides the cloud that could be hot. It said demand's very positive pretty much across the board except for DRAMs. When did you ever hear that lately?
AMAT's report quickly ignited the stock of Lam Research (LRCX), which is merging with KLA-Tencor (KLAC) to create a semi-equipment maker tech colossus. I had interviewed CEO Martin Anstice after Lam's amazing quarter. No one seemed to care, but it was off-the-charts fabulous. They cared after AMAT confirmed the company's trending orders.
Then this week we got the story out of a savvy paper in Taiwan that there are some big orders for chips coming from Hon Hai, the traditional maker of Apple iPhones in China. The orders suggested that there could be as many as 72 million to 78 million phones on order. That says Apple (AAPL) may be seeing some demand for a new phone that few others seem to get, least of all the sell-side or brokerage analysts who have been predicting the iPhone could be a bomb.
When you get Hon Hai doing well, then you are starting to talk about the basic building blocks of an iPhone, namely Qorvo (QRVO), Skyworks (SWKS0, Broadcom -- which is the old Avago merged with Broadcom, hence its symbol AVGO -- and Cramer fave NXP Semiconductor (NXPI), which has all sorts of momentum away from Apple, including momentum that merits ordering machines from AMAT. Skyworks and Qorvo are very heavily reliant on cellphones, including Apple's. Broadcom has much broader communications exposure. But my absolute favorite, and a charitable trust name, NXP, is really the one to own even up here. (Cisco, Apple and NXP Semiconductor are part of TheStreet's Action Alerts PLUS portfolio.)
Any time you ever see anything good for these companies, you have to be poised for a rally.
Today added to the possibilities. One of the biggest black holes in tech has come from the disk drive companies. If you take a look at the collapse of Seagate (STX), you will see what I mean as this disk drive company has been on a highway to hell for ages. But its comrade in arms, Western Digital (WDC), recently purchased SanDisk (SNDK), which has the kind of flash memory that is used in the cloud and is one of the reasons why AMAT has so many robust orders. We are getting calls that when WDC speaks on Thursday, it may talk up the combination and say good things. Anything that shows there's a pulse in one of these disk drive makers is going to be very well received.
All of this positive chatter is leading to the possibility that AMD and Micron (MU), both of which have flash, even though both are burdened with commodity lines, too, might be doing better. Again, we don't know who AMAT is getting orders from, but if flash is good there are a lot of companies that benefit.
Meanwhile, Qualcomm (QCOM) gave a very bullish interview to TheStreet's Brian Sozzi this weekend emphasizing excellent demand for its new chipset as well as a resolution in its Chinese licensing disputes. The company has a hoard of cash and it is a very visible positive story that's been down for ages. (Qualcomm is part of TheStreet's Dividend Stock Advisor portfolio.)
Then this morning, Cowen upgraded Microsoft (MSFT), saying it looks like that both Azure, its cloud-based initiative, and the utility that is Windows may be doing better. This is incredibly important for tech because Microsoft was very important in the decline of the whole tech complex because it had become such a star. Cowen's note implies that things are back on track. That would be something because I think the beginning of the tech selloff came when we learned Microsoft wasn't transitioning fast enough to being less personal computer and ran the risk of being just more tech roadkill.
So let's see, you get Salesforce going for the cloud, you get Cisco hot for networking, Applied Materials moving on up for semi equipment, Apple maybe doing more units out of nowhere, the component makers therefore doing better, Qualcomm talking a good story, Western Digital breaking from the pack of sob stories and Microsoft on the upswing?
That sure seems like a legit tech rally to me!
