Shares of chipmakers have come under significant selling pressure in recent sessions amid negative preannouncements and the U.S. clampdown on China exports. Ahead of semiconductor earnings, a KeyBanc analyst offered his take on what to expect from these companies.
China Front And Center Of Weakness: Analyst John Vinh sees semiconductor demand slowing broadly across all end markets in Asia, with consumer-exposed segments such as PCs and smartphones being the worst hit. Demand in Cloud datacenter is moderating, although it remained fairly strong, with the exception of China Cloud, the analyst said.
Automotive and industrial end markets were more resilient than consumer, but demand across both these segments was slowing down, Vinh said, citing channel partners. The analyst noted order pulls by ICE and electric vehicle customers in the automotive segment.
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“Slowing channel demand is being driven by customers looking to lean out inventory, as lead times continue to ease,” the analyst said. He added that demand from North America and Europe remained healthy.
With analog chip suppliers such as Analog Devices Inc. ADO, ON Semiconductor Corporation ON, NXP Semiconductors N.V. NXPI and Microchip Technology Inc. MCHP increasing prices, Vinh sees the higher prices offsetting near-term easing in backlog demand. The analyst said this will support a modest upside to third-quarter revenue and fourth-quarter guidance.
China was mentioned 43 times in the KeyBanc note. Channel inventory digestion, weak data center demand and weak smartphone sell-through in the country were mentioned as factors impacting most global chip companies.
On the other hand, chip suppliers to Chinese communication equipment should do well, KeyBanc says, as stimulus measures boost spending.
Chip Stocks With Favorable Risk-Reward:
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KeyBanc’s Recommendations:
Price Action: The iShares Semiconductor ETF SOXX settled Friday’s session at $298.68, down 4.17%, according to Benzinga Pro data. The ETF has lost about 44% year-to-date.
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