Avoid semis until summer of 2007

Texas Instruments (NYSE: TXN) warned of weak results last night after the market closed. This follows warnings by National Semi (NYSE: NSM), Xilinx (NASDAQ: XLNX) and Fairchild Semi (NYSE: FCS) last week. This does not bode well for handset makers Motorola Inc. (NYSE: MOT), Nokia Corp. (NYSE: NOK) and Samsung.

The two big quarters in the semiconductor business are the fourth quarter and the first quarter. The fourth quarter is driven by the consumer; the first quarter by corporate spending. If the consumer is cutting back on spending, it most likely also means that corporations will also begin to hold back on their spending.

Semi spending seasonally drops off a cliff in the second calendar quarter. Therefore, from looking at seasonal patterns, the bottom in semis might not be reached until the summer of 2007.

The one caveat with semis is interest rates. If the Fed begins dropping rates fast, semis might become attractive again.

No rush to bottom fish in this sector. These stocks will be a lot cheaper by mid-2007.