The idea of a peak in the semiconductor cycle -- cell phone, semi equipment, whatever -- flies in the face of every quarter I am hearing, yet it remains a dominant theme among the mutual and hedge fund managers I listen to.
When they aren't being out and out bearish, most of the managers that come on television or talk about the market can't find a cycle that they like. But they can easily find ones they don't: namely anything having to do with cellphones and cellphone chips, because of problems with Samsung and because Action Alerts PLUS charity portfolio Apple (AAPL) is already tapped out and because there's nothing new under the sun.
First of all, cellphones are now part of a vast ecosystem that devours all sorts of chips to do everything. A cellphone that runs in conjunction with the connected home and the connected car is not some hardware device. It is a complicated machine that does all sorts of thinking and learnings for you an and is packed with chips.
It's the same thing as a car. That's not going to be a piece of hardware, it is still one more delicate piece of machinery that is loaded with chips, typically chips that are made by the same companies as those in a cellphone.
Everyone seems to want to pigeonhole Skyworks into a chipmaker for cellphones and I am not going to say that it isn't. Apple and Samsung matter tremendously to it. But Skyworks is only one acquisition away from being Broadcom (AVGO) and it's got plenty of cash to be it. In the meantime, its expansion into autos and healthcare is happening pretty quickly. Oh, and it isn't so bad to be the largest semi content in Apple, when Apple can't make enough phones.
What can I say? I thought the KLA-Tencor (KLAC) -Lam deal was exactly what was needed, given all the consolidation in the semi business. Its customers were consolidating, so it would have helped to have it be able to merge with KLA. Sure, maybe the customer said one thing to Justice and another thing to Martin, but even without KLAC these semi companies can't make what they need for more complex devices without Lam's help.
The real knock on Lam, I think, could be a slowdown in spending from the biggest semi company out there that spends on equipment, Samsung, simply because I believe that people continue to underestimate how much this Galaxy Note 7 fiasco is going to cost them. That's especially as we still haven't heard the complete fallout from the largest market, China, because of the possibility that Samsung out and out dissembled to important individuals within the 88-million strong Communist Party membership. They may have to cut back simply because of the losses for the Galaxy line.
That said, internet of things, machine learning, artificial intelligence: these aren't all software issues. They are hardware issues. They aren't peaking. They are in secular growth mode. The stocks are reflecting peaks as if they are still in the old cyclical mode of personal computers or something.
I think that's way too conservative, if not plain wrong. These companies are making too much money -- have you seen the size of their cash hoards? $7 billion for Lam and $1 billion for Skyworks with no debt-- and have too many possibilities to sell them here, now, especially going into what has long been the seasonably strong fourth quarter.