An ETF to target chips

This fund provides exposure to the biggest names in the semiconductor industry.

By TheStreet Staff Jan 12, 2011 12:51PM

TheStreethigh tech © CorbisBy Don Dion, TheStreet


Intel (INTC) is scheduled to report fourth-quarter results Thursday. It's the world's largest chip-maker, and analysts keep a close watch on its performance in hopes of gaining insight into the state of not only the semiconductor industry but the broader tech sector as well.


Intel saw success in the first three quarters of 2010, marked by a dividend increase in November and a bold statement from CEO Paul Otellini, saying the company was on track to see its best year ever.


As investors begin 2011, Intel looks to remain strong and promising as a leader in the industry. However, the company still faces challenges. One major hurdle this year will likely be growing pressure from leading competitors.


Intel has long been the dominant player in the PC industry. However, at the recent Consumer Electronics Show in Las Vegas, Steve Ballmer of Microsoft (MSFT) announced that the next version of Windows will support ARM Holdings (ARM) chips. (Microsoft owns and publishes MSN Money.)

Growing demand for tablet computers also weighs on Intel. Although the company has taken steps, it has seen a noticeable delay in entering this region of the market. A report from Zacks highlights analysts' concerns associated with the fact that the company is not expected to step into this industry until the latter half of 2011.


Given the hurdles Intel faces, taking a broader approach to this industry may prove to be a more lucrative option for the coming year.


The iShares PHLX SOX Semiconductor Sector Index Fund (SOXX) is a large and appropriately liquid option for investors looking for exposure to the chip industry. The fund is ideal for fans of Intel, as the company represents 7% of its index. Aside from Intel, SOXX's underlying components include a bevy of companies that are considered to be household names in chips.


Among the fund's top 10 holdings are Applied Materials (AMAT), Texas Instruments (TXN), Broadcom (BRCM), Nvidia  (NVDA), and Taiwan Semiconductor Manufacturing (TSM).


In the closing half of 2010 and the start of 2011, SOXX has seen staggering gains, leading the fund to recapture levels seen prior to the market's downturn in late 2008. The fund's steady rise has led the fund to move up in both our long- and short-term momentum rankings.


The semiconductor industry could hold promise in the coming year as technology becomes increasingly part of our daily lives.

As an industry leader, Intel's earnings report will be interesting to watch. However, focusing solely on the company may not be the best way to approach chips. Given rising competition pressure from across the industry, more gains can be made through SOXX.


TheStreet contributor Don Dion is president of Dion Money Management. He doesn't own positions in the securities mentioned in this article.


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Jan 12, 2011 10:57PM

Why not mention Proshares Semiconductors ETF - ticker USD.  If you like fast cars, racehorses, and a rocket express to Mars this might be the one for you.


Of course the ultimate ride in ETF's is SOXL.  Not for the faint of heart, it sports 3X leverage in the Semiconductor space.  3X the loses too if you are wrong on the direction of semis.


You can play the short side of semiconductors, both with Proshares 2X leverage, and Direxion 3x leverage.

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