No Stagnation In Chipmakers

Investors are rightly skeptical about a tech rebound, but globalization is driving semis upward.Semiconductor stocks have been put on temporary hold as investors take pause on the state of economic affairs to see whether ballyhooed green shoots are real. Even though recovery data are piling up all around, you can't blame chip investors for the case of nerves after being burned by the sluggish previous couple of years that turned into inventory-liquidating rout last summer. A shift to low-priced consumer applications in the developed world spurred units but short-circuited revenues and profits. Developing nations were not yet ready to fill the gap.
By the end of the first Internet boom in 2000, high-margin office automation and communications infrastructure projects were sufficient to produce a productivity-rich global recovery circa 2003 through 2007, jump-started by the rise of China and India. Global outsourcing and regional integration produced a profits boom of the first order. Many confused this with so-called liquidity sloshing, but the end result was price hikes in productive assets because of supply limitations. As the recovery ensued, governments raised short interest rates above the rate of inflation, leading to tight credit and ensuing recession. The ensuing downturn was exacerbated by the now all-too-well-known story of excess leverage at key financial institutions and improper derivative contracts. Today, we see improvement in the U.S. labor market as reduced job losses are accompanied by favorable backward adjustment and rising confidence. Weekend headlines of hope were greeted by Monday morning pullbacks, especially in emerging market shares that had soared from early year lows, with loose talk of a new de-coupling. Economic tealeaves for months have foretold that low interest rates, massive governmental stimulus and much reduced oil prices would necessarily spur industrial recovery and liquefy consumer balance sheets, thus a little sell on the news greets the good data.

by:Rick Whittington(fORBES.COM)