Semiconductors attract short sellers

As we are now in the midst of earnings season, a short recap of investor sentiment towards the Semiconductors industry would be appropriate given a mixed bag of earnings results and a cloudy outlook going into next year. Worldwide Semiconductor shares have decreased 3% in aggregate since the beginning of the earnings season two weeks ago. We will look at Freescale (NYSE:FSL), Fairchild (NYSE:FCS), Advanced Micro Devices (NYSE:AMD), Novellus Systems (Nasdaq:NVLS), Dialog Semiconductor Plc (XTRA:DLG), Inphi Corporation (NYSE:IPHI), MEMC Electronic Materials (NYSE:WFR), Novatek Microelectronics (TSEC:3034), Veeco Instruments (NASDAQ:VECO), Aixtron (DB:AIXA), ARM Holdings (LSE:ARM) and MediaTek (TSEC:2454).

Short sellers have always been active in Semiconductor shares; the long short ratio for the sector currently stands 6.7, well below the US average of 12.3, meaning that there are 6.7 times more supply than demand to borrow. Globally, the average short interest for semiconductor shares stands at an average of 5% of shares outstanding.

Shares which have already announced results have seen their short interest increase in the last month, increasing 4% overall to 4.3% of overall shares being sold short. Shares which saw the largest increase in short interest include Freescale (NYSE:FSL) and Fairchild (NYSE:FCS) which saw their short interest rise 87% and 41% respectively with both standing at 3% of total shares on loan. Most telling is the 47% rise in short interest seen by Advanced Micro Devices (NYSE:AMD) to 11% of total shares. The companies with the highest short interest following earnings announcement are Novellus Systems (NASDAQ:NVLS) and Dialog Semiconductor Plc (XTRA:DLG) with short interest representing 14% in the former and 15.3% in the latter of shares outstanding.

Shares which have yet to release earnings have seen their short interest fall 2% to 5.2% of overall shares.

Of shares which have yet to report earnings, Inphi Corporation (NYSE:IPHI) has seen its short interest increase 114% to 6.7% of total shares, the largest increase. MEMC Electronic Materials (NYSE:WFR) and Novatek Microelectronics (TSEC:3034) also saw their short interest increase 39% and 69% respectively to 5.6 and 2.6 percent of total shares. Other highly shorted shares with upcoming earnings include Veeco Instruments (NasdaqGS:VECO) and Aixtron (DB:AIXA) whose short interest stand at a staggering 40 and 38 percent of total shares.

Analysts have also been increasingly bearish on companies about to report earnings; the mean analyst recommendation for shares reporting earnings in the upcoming fortnight increasing from 2% to 2.25 according to data compiled by Capital IQ. Standouts include ARM Holdings (LSE:ARM) whose short interest stands at 2% of shares outstanding and MediaTek (TSEC:2454) which has a short interest of 4%.

All in all this has been a turbulent fortnight for Semiconductors and short sellers have reacted accordingly. The next couple of weeks could prove to be equally dramatic for both shares prices and short interest if earnings continue to follow the same trend set by companies which have already announced results.