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Techs and Autos: Expectations Reset Downward?

The big trading story today is the surprising poor guidance of semiconductor capital equipment maker Novellus and chip maker Microchip ...

MCHP, which sells chips to several industries, cited broad based weakness, including autos...NVLS mentioned a weak PC outlook, soft handset sales and their CEO noted that their top six customers provided a "cautious tone and a feeling of uncertainty..."

Standard and Poor's reflected their concerns in a report this morning:

"While the disaster in Japan had caused chipmakers to re-evaluate their equipment order plans last quarter, some fears have arisen in recent weeks about the health of the overall semiconductor industry. There are signs that excess chip inventories may be building up in the electronics supply chain, which in turn could hurt semiconductor device demand down the road. This has resulted in Novellus' customers becoming more cautious with their capital spending plans."

This is not what traders were expecting to hear...earnings were supposed to be the "good news" part of the equation to offset the "bad news" of Europe.

The concern: much of this weakness has been waved away as part of the "supply disruption" that was part of the Japan earthquake...under this scenario, bulls waved away the weakness by saying this would pass...in both autos and tech.

But maybe it hasn't passed. This is not an academic question. A lot is riding on an auto recovery in the second half, for example...seasonally adjusted annual rates (SAAR) for autos was strong going into Q2 and weakened as the quarter wore on. Again, "Japan supply issues" were blamed for much of this. We'll see.

As if this wasn't enough, GM's stock has been notably underperforming the market for months on worries about sales, but also on the overhang of another likely government sale of more stock. Treasury still owns 32 percent of GM (the UAW also owns a piece), and it's likely they will sell a large part (perhaps all) in one or more sales before the year is out.

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