3 Reasons to Believe in This Rebound

The tech market has shown many signs of life recently, leading many investors -- myself included -- to believe that the worst is over. Today, we have three fresh pieces of evidence to support this thesis.

First, semiconductor titan Texas Instruments (NYSE: TXN  ) took an already rosy view of the ongoing quarter and raised it to high heaven:

 

Original Guidance

Updated Guidance

Q3 2008 Results

Revenue

$2.5 billion to $2.8 billion

$2.73 billion to $2.87 billion

$3.39 billion

Earnings per Share

$0.29 to $0.39

$0.37 to $0.41

$0.43

The mere fact that TI is raising both sales and earnings expectations shows that the quarter is proceeding better than management originally thought. The bottom line could nearly reach pre-crash levels again even though revenue will fall a bit short. This means that we're looking at a leaner, meaner TI today with a tighter grip on its cost structure. That's a great position to be in when sales do rebound to their old levels.

Second, the infrastructure that powers the chip industry is improving too. Semiconductor lithography expert ASML Holding (Nasdaq: ASML  ) raised its guidance 11% to "above 500 million Euros [About $725 million]" with future order bookings "significantly above that level."

Texas Instruments is one of ASML's largest customers, so the trickle-down effect is evident here. The company also provides chip-making equipment to other industry leaders like Korean everything-techie Samsung and outsourcing manufacturer Taiwan Semiconductor Manufacturing (NYSE: TSM  ) . ASML's management credits strong orders from the computer memory and logic processors of the kind for which TI and Samsung are famous.

And third, there's great news from a giant further down the technology food chain: Storage systems specialist EMC (NYSE: EMC  ) sees a slow but steady path to full recovery. CFO David Goulden says that "corporate IT spending is on an upward path," and expects more corporate IT spending in the back half of 2009 than the beginning. And you know what the turtle says about "slow and steady," don't you?

There's actually more good news out there, including higher guidance from smaller TI rivals Altera (Nasdaq: ALTR  ) and Microchip Technology (Nasdaq: MCHP  ) . All told, I thinks it's safe to say that this wave of optimism rests on more than just the annual batch of Apple (Nasdaq: AAPL  ) product updates -- we have a real recovery on our hands, and it is not too late to invest accordingly.

Are your tea leaves telling a different story? Share your insights in the comments below.

Apple is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Taiwan Semi, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On September 12, 2009, at 3:20 PM, byrancappelletti wrote:

    You may be correct provided one caveat. This rally is based upon the March decision by Congress to alter bank accounting rules. Banks no longer have to report losses on loans they are willing to hold to maturity. That is, these loans are no longer "marked to market." IF the financial industry can continue to sweep losses under the rug and if the American population can continue to buy houses and not have to put anything down (nothing like the $8000 tax credit homeowners can use as a down payment this summer) and then miss monthly payments without repercussions then the population can buy electronic stuff this Christmas. But if this is the case you will see an increase in consumer oil usage and resulting oil price increases as well as a dollar that will weaken. Gas will be five dollars next 2010 summer and then the consumer led recovery you anticipate will decline. Thus this recovery at the best will last no more than Q1 2010. However, I expect the banks will still take losses in Q4 2009 regardless of the Congress ruling this prior March. Consumer debt levels cannot be substained at the interest rates (5%-30%) consumers are being forced to pay without a significant increase in monthly income. Banks which can currently borrow short term at 0% are putting there money to work in the stock market and no where else.

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