Semi Dis-connect?

I've been pointing out the strength in the semiconductor shares of late, but a headline a few hours ago caught my attention. Novellus Systems (NVLS), a $3.5 billion cap semi equipment firm, lowered guidance for their 2nd quarter today. In addition, comments from an analyst at Goldman Sachs and at CIBC were particularly interesting:

Goldman Sachs analyst James Covello, who has a "Sell" rating on the stock, thinks things could get worse. He predicts a fall in orders for production equipment used to make DRAM, or dynamic random access memory semiconductors, could have "a significant negative impact on company fundamentals over the coming quarters." Covello does not, however, think that Novellus' problems are unique to the company. "(We) would expect the excess capacity situation in the DRAM industry to drive significant order reductions to all of the front-end semiconductor production equipment suppliers for the remainder of the calendar year," Covello wrote in a client note.

CIBC analyst Gary Hsueh thinks Novellus' warning offers little hope of a rebound this year.
"Ordinarily in a cyclical soft spot, results closer to the low end of guidance would not merit a pre-announcement. However, commentary on weakening equipment demand and the need to take pre-emptive actions on cost clearly imply that there is no hope of an order rebound for Novellus in the second half of the year," Hsueh wrote in a client note.

Therefore, the take away is for caution. In addition, additional fireworks could be in store for next week, as i've read reports that have guys standing in lines for iPhones, which they will immediately dismantle Friday night to see whose chips and other components are inside. What you do with that information I'm not quite sure, but it could make for some wild trade on Monday.

Finally, as i type and glance at the ticker tape, LSI Logic (LSI) is cutting 13% of their work force and cutting views on its 2nd quarter as well. Here's the story. Yes, caution is warranted right now in semi land!

BTW - Micron (MU) reports after the close today. Stay tuned!