Intel (INTC) is down 3 percent and the biggest loser in the Dow Jones Industrial Average after Morgan Stanley lowered their outlook on the chip sector due to rising inventories and the view that industry fundamentals have peaked. INTC is off 55 cents to $18.46. The top options trade in the chipmaker is a block of 37,500 January 2010 calls at the 20 line ask-side for 57 cents at 12:34 on the ISE. It was tied to a block of shares, according to a floor contact (probably a block of 1.12 million that traded for $18.40 at 12:36). It might close an existing position (buy-write), as open interest in the Jan 17.5 calls is 179,000 contracts.

In any event, the losses in Intel and the declines in some of the other chip names Tuesday — like Micron Tech (MU) and Applied Materials (AMAT) discussed earlier — seem to be the direct result of Morgan Stanley’s cautious research note — link to story.

Yet, the cautious comments from Morgan stand in contrast to other data that seem to point to a recovery in the chip industry. For example, the Semiconductor Industry Association notes yesterday that, “Worldwide sales of semiconductors in the quarter ended September 30 were $61.9 billion, an increase of 19.7 percent from the prior quarter when sales were $51.7 billion, the Semiconductor Industry Association (SIA) reported today.” link to press release.

On October 20, Semiconductor Equipment and Materials International [SEMI] reported that it’s widely watched book-to-bill ratio jumped to 1.17 in September. What’s interesting about the SEMI report — link — is the surge in bookings. Total bookings, or new orders, increased to $732 million in September, up 19.3 percent from August and up nearly 200 percent from six months ago!


SEMI Book-to-Bill (click for larger view).

Finally, it seems that prices in the spot market are on the rise. Now, I’m no chip trader, but looking at the DXI Index — a measure of chip prices on the spot market from Dramexchange.com — it looks like prices for semiconductors are doing quite well!


Rising global sales (SIA data), surging orders for semiconductor equipment (book-to-bill), and rallying semiconductor prices (DXI)? Yet, chip stocks are falling? This seems to reflect the view that, as Morgan suggests, industry fundamentals are peaking. However, a lot of the data seems to suggest otherwise — i.e. trends are improving and momentum is still building.