By Shoshanna Delventhal Updated Jan 9, 2019
6 Vulnerable Chip Stocks· Micron Technology
· Western Digital Corp.
· Texas Instruments
· NXP Semiconductors
· Cypress Semiconductor Corp.
· Microchip Technology
Sharp Contraction in Revenues for 2019Morgan Stanley’s Joseph Moore expects semiconductor companies, which make chips for servers, automobiles and a wide variety of devices like smartphones, to see revenues fall by 5% this year. Forecasts for a “sharp contraction” in top line numbers for chip makers comes after industry data was released indicating that semiconductor sales rebounded in November after a disappointing October. Morgan Stanley expects total chip industry revenue to increase by 13% to 14% for 2018, and grow in the low-single-digits in Q4.
The firm attributes its pessimistic view to a number of challenges facing the industry, including excess inventory, slowing demand, China trade tensions and a deceleration in M&A activity.
Chip makers, which maintain most of their manufacturing in China, have been hard hit by fears of a trade war between Washington and Beijing.
"We remain cautious on semis," wrote Moore.
Apple Lowers OutlookGoldman’s bearish report was published just a day before Apple Inc. (AAPL) made an announcement cutting its revenue outlook for Q4. Shares of the iPhone maker tumbled nearly 10% on the news, dragging down shares of suppliers including Intel Corp. (INTC) and Qualcomm Inc. (QCOM) with it. Apple CEO Tim Cook attributed the lower guidance on a downturn in the Chinese economy and strained relations between the U.S. and China.
Semiconductor companies are slated to report Q4 results over the next few weeks. Investors will be looking out for signs of trouble in year-end results as well as first quarter guidance.
Despite the myriad of negative headwinds facing chip makers, it’s important to note that this sector can rebound quickly on changes in investor sentiment. Nonetheless, investors would be wise to remain cautious within the space, given the broader economic outlook doesn't bode well.
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