How GOOG Could Boost The Semiconductor ETF

by on May 28, 2010 | ETFs Mentioned:

As anxiety over Europe’s debt woes and the resulting drag on global growth have intensified in recent weeks, equity markets around the world have plummeted. Technology companies, which led the way higher during the recovery of 2009, have fallen on hard times. After rising for much of the start of 2010, the tech heavy Nasdaq has slumped by close to 10% since mid-April. Tech bellwether Google has seen its shares plummet in recent weeks, despite a promising pipeline of new revenue sources from the Mountain View, California-based search engine giant.

As Google continues to expand its operations beyond online advertising, the company has ventured into some interesting businesses (see Why Google’s Wind Farm Ambitions Could Crush The Coal ETF). After the development and implementation of its Chrome web browser and the Android mobile operating system, Google has now set its sights onto the television market as its next conquest. Recently, Google has announced that its newest product, Google TV, will be launching later this year. The product has been hailed by Google CEO Eric Schmidt as the “biggest revolution in television since color sets replaced black and white.” If Schmidt’s assessment is even close to accurate, the company’s next venture could have a big impact on not only the television market but semiconductor demand as well.

According to the San Francisco Chronicle, Google’s Android software will be built into some televisions from Sony starting in the fall of 2010, and will also be available in separate boxes from Logitech. By plugging cable into the box from Logitech, consumers be able to watch cable enhanced with an extra layer of web functions, such as watching videos or reading websites. Luckily for Intel investors, both the Logitech product and some Sony TVs will have Intel atom chips inside, a fact which could greatly boost the demand for the semiconductor leader’s products. According to stock research firm Trefis, Google TV could add up to 5% to Intel’s stock and help INTC expand its market by 30 million processors by the end of 2016. This figure is assuming that just 10% of televisions by 2010 are compatible with Google TV so a quicker adoption rate would obviously be great news not only for Google but for chip giant Intel as well (see Semiconductor ETFs Soar On Intel’s Bullish Outlook).

Way To Play

One of the best ways to play a semiconductor boom is a bet on the Merrill Lynch Semiconductor HOLDR (SMH). The fund allocates almost a quarter of its assets to Intel, which stands to benefit the most from widespread Google TV adoption. Additionally, the fund has major holdings in Texas Instruments (19.4%), and Applied Materials (12.5%). SMH is also well diversified among market capitalization levels, with just 23.9% going towards giant cap companies and 35.4% going towards large caps and 39% towards mid cap securities (see more on SMH’s holdings page). Like the rest of the market, the fund has had a poor month; it is down almost 9%. However, SMH is down just 2% thus far this year, and could make an interesting play for long-term investors who are bullish on the prospects of Google TV (see Five Facts About HOLDRs Every ETF Investor Must Know).

For more ETF ideas make sure to sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.