This reader still performed a valuable service, however, by helping us realize the original title needed to be changed.  A more-precisely-correct title for this missive is. "Does wafer growth impact profits?"

After all, at some point it seems like the market will value stocks based on actual profits rather just momentum or growth or market share or the infamous "cool" factor.

So here is the original piece with the arithmetic error highlighted, followed by a (slightly) different conclusion:
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This is just a quick note to highlight a couple of semiconductor-industry-generated figures.  We strongly believe these numbers tell us less than the headlines proclaimed.  You can't see what they're really telling you when looked at them in isolation (let alone read the headlines).  However, when shown in series and/or compared to one another, some excellent "edge" can be found.

First up are Semiconductor Manufacturing Industry Association (SEMI) wafer area shipped numbers.  They finally(!) released 2Q06 figures last week (now added to the web site (http://www.viewfromsiliconvalley.com/id184.html)).  Putting together a "first half" series since 2000 finds:

        1H     y-o-y
2000   2,647    --
2001   2,238   -15.5% (we reversed the sign)
2002   2,284    +2.1%
2003   2,448    +7.2%
2004   3,148   +28.6%
2005   3,071    -2.4%
2006   3,850   +25.4%

The note we got from SEMI with their link to the latest figures included the comment, "Shipments in 2Q were 4% above the previous quarter."

This is curious since you can clearly see 1H06 growth w2as +25.4%.  Unlike SIA, did SEMI highlight a figure which was not the best-possible representation of their results?

Fortunately, we don't have to evaluate SEMI's series data in isolation.

The Semiconductor Industry Association (SIA) produces semiconductor sales figures.

        1H     y-o-y
2000   $95.4M    --
2001   $77.9M  -18.3%
2002   $66.3M  -14.9%
2003   $75.0M   +8.7%
2004  $102.4M  +27.4%
2005  $109.0M   +6.4%
2006  $118.0M   +8.3%

Sliced this way, 1H06 is pretty good.  The all-time highest first half of the year --ever!  Not only did we have sales growth in 2006 but we had more 1H y-o-y growth in 2006 than in 2005.

Now let's put them together:

       Sales$   y-o-y   Area  y-o-y
2000   $95.4M    --    2,647
2001   $77.9M  -18.3%  2,238  -15.5%
2002   $66.3M  -14.9%  2,284   +2.1%
2003   $75.0M   +8.7%  2,448   +7.2%
2004  $102.4M  +27.4%  3,148  +28.6%
2005  $109.0M   +6.4%  3,071   -2.4%
1H06  $118.0M   +8.3%  3,850  +25.4%

The rest of the revisions begin here...

A couple items stand out from this info:

Growth
Since   Sales   Wafers
2000   +23.7%   +45.4%
2001   +51.5%   +72.0%
2002   +78.0%   +68.6%
2003   +57.3%   +57.3%
2004   +15.2%   +22.3%
2005    +8.3%   +25.4%

In short, despite our "huge" arithmetic error, wafer area still growing faster than sales.  There was a cross-over in 2002 and then a "cross-under" in 2004.  (Or vice-versa, depending on your point of view...)

Even more interesting are the absolute latest figures:

       Sales$   y-o-y   Area  y-o-y
2Q05   $53.9M   +0.7%  1,606   -0.8%
3Q05   $58.7M   +5.6%  1,748   +7.3%
4Q05   $59.6M   +8.6%  1,826  +22.9%
1Q06   $59.1M   +7.3%  1,884  +28.6%
2Q06   $58.9M   +9.4%  1,966  +22.4%

Unlike SEMI, SIA's headline was, "Second Quarter 2006 Sales Up 9.4% Over 2005," disguising the fact 2Q06 q-o-q sales growth was only +1.4%.  (The official line is to dismiss q-o-q sales due to "seasonality."  Unfortunately, "fabs never sleep" and wafer output continues 24/7/365...)

Not only was 2Q06 wafer area growth dramatically higher than sales growth, but so were 4Q05 and 1Q06.  You have to go back to 2Q05 to find sales dollars growing faster than wafer area.  For the last three calendar quarters, y-o-y wafer area has nearly tripled (24.6% y-o-y) the rate of sales growth (8.4%).

Conclusion: Clearly, wafer area growth does NOT drive semiconductor sales growth.  (We think the impact on profits will soon become clear.)  If asked to bet which way semiconductor stocks were likely to go from here, we definitely would have an opinion.

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The above is not intended as advice to buy, sell or hold any stock, bond, real estate nor any other financial product or service. Invest at your own risk.