The technology stocks that are creating new designs have their market sentiment judged based on how many new and innovative products they can create. Technology stocks that are being contracted to manufacture segments of a product have their market sentiment judged on efficiency, quality control, and cost structure.
This differentiation of technology stocks is present in the semiconductor industry. Amkor Technology, Inc. (NASDAQ/AMKR) is one of the largest firms offering contract semiconductor assembly in the world. Amkor also provides semiconductor packaging and test services. Amkor’s clients include some of the leading technology stocks, such as International Business Machines Corporation (NYSE/IBM), Sony Corporation (NYSE/SNE) and Altera Corporation (NASDAQ/ALTR).
This segment of technology stocks can be volatile in terms of shifts in market sentiment. A loss or gain of a contract can mean big swings in the stock price. The key is to determine the overall trend of the business.
For the second quarter, which ended on June 30, 2012, Amkor reported net sales of $687 million, up five percent from the first quarter of 2012. The company did take a charge of $34.0 million related to a contingency loss accrual; once this charge is taken out to show operational income, the company reported adjusted net income of $33.0 million, up from the first quarter’s net income of $12.0 million.
When it comes to technology stocks, being in the right sector is extremely important for future growth. Market sentiment can shift abruptly if technology stocks are believed to be in a slow-moving segment. Amkor’s president and CEO, Ken Joyce, made this statement in regards to the firm’s future growth strategy: “Amkor’s strong position in communications continues to drive our business with notable strength in smartphones and tablets.” (Source: Amkor press release, “Amkor Technology Reports Financial Results for the Second Quarter 2012,” 2012)
With technology stocks growing increasingly reliant on smartphones and tablets for growth, market sentiment should continue to support firms that are derivatives of those sectors. However, because of the uncertainty in the global economy, the company is cautious about growth, expecting third-quarter revenue to increase by a range of two to nine percent, or $700 million–$750 million.
The firm’s fundamentals are quite reasonable when compared to other technology stocks. Amkor trades at a forward price-to-earnings ratio of 5.4, a price/earnings-to-growth ratio of 0.8, and a price-to-book ratio of just over one. Looking at the technical analysis of the stock, you’ll notice the over-extended Relative Strength Index (RSI) in February, which led to the top in the move at that point. The market then consolidated to an over-extended level, as shown in the extreme levels in the RSI in May. With the cautious tone and worries about the global economy, the stock has since sold off, as market sentiment is unsure about the future.
The question is whether market sentiment will shift anytime soon for this or similar technology stocks. That is always a difficult question to answer, as there are many variables that help determine the overall market sentiment. We do know that the fundamental metrics for Amkor are not overly expensive and that revenue for some technology stocks is growing in certain segments. If the world economy worsens over the next few months, one must question how much of an impact it will have on technology stocks. Most likely it will weigh down market sentiment until signs of accelerating revenue growth for all technology stocks resumes.
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