It was a wild, wild week this week as the markets started out with deep plunge Southward on Tuesday with a 465 point drop in the Dow before the Fed surprise of a 0.75% cut in the federal funds rate to 3.5%. Many were wondering if the Fed was spooked or acted prematurely. After a short delay, the announced rate cut sparked a rebound which recouped 72% of the opening losses, leaving the day's loss at 128 points. 

On Wednesday, down nearly 330 points in the early afternoon, the Dow stormed back to a gain of +299 points on the back of huge buying in banking and financial sector.  The 625-point swing is the second-largest point change from bottom to close in the Dow's history, after a 702-point swing on July 24, 2002 after the tech boom collapse. 

On Thursday, a moderate rally took the Dow up by 108 points.  Chip stocks saw good follow through from the previous day's gains.  The market was boosted by news that Congress and the Bush administration had agreed to a $150 billion stimulus plan even though many believed it was a weak plan, politically motivated. 

After trying to rally for the third day, investors selling into the rally brought the Dow back down by 171 points today (Friday).  The weak finish sets up a big week next week with the expectation that the Fed will cut interest rates again by another 0.5%.  Earnings reports will flood the news next week, the Commerce Department will report fourth quarter GDP, and the Labor Department will report payrolls and unemployment.

Based on my analysis and as you read from my earlier reports, we are in a primary bear market which commenced in November 2007.  See my chart analysis of the big picture titled "Bear Market Started, How Long?" under the INVESTMENT CHANNEL, Investment Outlook.  With the current technical analysis, my best estimate is that this bear will take the Dow down from the peak of 14,200 to the 10,625 level -- a 35.9% decline. 

In contrast to the last bear market of 2000-2002, this one will be worse in terms of the Dow Industrial Average decline.  In the previous downturn, the index dropped by 28.2%.  However, the SOX (Philadelphia Semiconductor Sector Index) which skyrocketed to the 1,325, fell a precipitous 82.6% to the 230 level. 

Since then, the recovery levels reached peaks to the 500 to 550 level three times without being able to break to the upside of this resistance level.  There is a support level for SOX at 350 which is currently being tested.  If the SOX index can successfully test this level, it will be encouraging. If this support is broken, the next support level is at 200-230 which has occurred in Q3 1999 and Q3 2003.  My current belief is that the 200-230 range is maximum downside for SOX -- a potential decline of 60.9% from 550.  As of today, the SOX index has the declined by 35.5% from the 550 level.

I will moderate a panel of semiconductor industry executives discussing the topic: "Ecosystem Environment for Starting a Semiconductor Company" at the DesignCon 2008 Conference and Exhibition (Santa Clara Convention Center in Santa Clara, Calif, February 4-7, 2008).

Fabless semiconductor start-ups face a number of challenges in today's market and investor climate. It is no longer enough to come up with a great technology and assume it will lead to success. They need to leverage resources such as those provided at the DesignCon Business Forum panel to learn what it really takes to build a successful company.

The DesignCon Business Forum panel will be held on Tuesday, February 5, 2008 from 2:00PM to 3:30PM and will feature these distinguished members of the semiconductor startup ecosystem:

• Glen Balzer, President, New Era Consulting
• Steve Bengston, Director, Emerging Ventures Practice, PriceWaterhouseCoopers
• Dave Guzeman, President, Mindpik
• Lucio Lanza, Managing Director, Lanza techVentures
• James Prenton, Partner, K&L Gates
• Steve Szirom, President, InsideChips

The panel discussion will cover topics ranging from increasing the odds for successfully launching a new venture and getting it funded to avoiding pitfalls, meeting major business milestones, and seeing the venture through to a successful exit. The panelists will share their knowledge of what makes a good startup ecosystem environment and talk about the unique challenges faced by chip start-ups, with their technology's novelty and highly more complex hardware-software design issues. The panel will address all of these issues to help entrepreneurs understand how to create an ecosystem and a community that forms a sound foundation for a new fabless semiconductor, IP, design-house or EDA venture.

Visit the DesignCon Business Forum page for more information or to register for the panel. About 45% of DesignCon's attendees are engineering professionals from the semiconductor industry.

The panel of analysts:

1. Anne Craib, Semiconductor Industry Association,
2. Richard Gordon, Gartner Dataquest Research
3. Gary Grandbois, iSuppli
4. Jim Feldhan, Semico Research
5. Steve Szirom, InsideChips.com
6. Moshe Handelsman, Advanced Forecasting
7. Gary Smith, Gary Smith EDA
8. Mike Cowan, independent analyst
9. Carl Johnson, Infrastructure

The panel discussed some of the following trends:

• Consumer consumption - now representing more than 50% of semiconductor consumption - is not only from traditional consumer devices, such as MP3 players, digital TVs and cell phones, but includes PC unit demand, which is now almost 40% consumer-driven, and automotive electronic content
• Concerns about consumer spending caused by higher oil prices, the mortgage crisis in the United States and fears of a possible recession have made analysts more cautious, but still optimistic, about growing semiconductor revenues in 2008
• The majority of the panelists predicted that the worldwide semiconductor would see growth in the 6-11% range, while three others predicted a year of flat or even negative growth
• One of the biggest unknowns is the possibility of a recession in the United States and what impact that will have on consumer spending

To hear the panel's predictions and listen to semiconductor issues on the radar for 2008, click here.

For a summary of all analyst forecasts for 2008, click here.

InsideChips has analyzed the performance of semiconductor IPOs since the go-go days of 2000.  The semiconductor IPO performance analysis of 32 chips companies which filed for IPOs since 2005 shows mixed results.  Eight of the 32 are on deck awaiting their IPO date and four have withdrawn.
 
Of the 20 which filed and launched their IPOs, only eight are up from their IPO price as of 10/31/2007.  Twelve companies are under water showing price declines since the IPO.  Hittite Microwave, a RF IC and module maker, shows the best performance with a 155% increase in its stock price since its IPO.  Pixelplus, a Korean CMOS image sensor supplier, has the worst performance in the group with an 86% decline in its stock price since the IPO.

The top-5 and bottom-5 semiconductor IPO performers since 2005 are shown in the chart below.

InsideChips members can view a complete list of all IPOs, status and performance on the IPO Tracker page.

InsideChips views the current investment environment for semiconductor IPOs as lukewarm at best.  In view of the recent US sub-prime fallout, it is now less likely that prices will surge on the first day of trading and that underwriters can market the issues at aggressive prices. There is still anxiety over credit markets and the sub-prime fallout. Investors don't know how widespread the contagion is.

While the semiconductor IPO pipeline spigot is not turned off, there is still a possibility that issuers will delay or abort IPO offerings.  Many investors seem to be in a wait-and-see mode to see how the economy will be affected by the credit and housing problems.

One of the technical metrics which is tracked by InsideChips is the trend in the advance-decline indicator of 135 publicly-held chip companies.  As seen in the table below, the Semiconductor Advance-Decline Indicator shows that the underlying trend of the market is still negative -- more chip stocks are moving down than up on a cumulative basis.

Chipidea's revenue has grown with a CAGR of 38% between 2000 and 2006. For the trailing four quarters, with the last quarter ending June 30, the revenue recorded was $32.8 million.  Its most recent sequential quarterly growth was believed to be about 22% with roughly $10 million sales in the latest quarter.

This significant acquisition by MIPS creates opportunities and design-in leverage for the company because most of today's SoCs require an analog and mixed-signal component in their SoC designs.  MIPS adds considerable analog design talent (300+ employees) and design center locations (Portugal, France, Belgium, Poland, China, Norway, and Macau).  The combined company will have revenues of about $110 million. Its nearest IP competitor is now 3 Synopsys with about $91 million revenues but seen growing at a slower rate than MIPS.

The complete analysis is available here.