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Samsung Warning Deals Blow to Semiconductor ETFs

This article was originally published on ETFTrends.com.

While the broader equity markets managed to maintain their rally, semiconductor stocks and sector-related ETFs retreated in response to Samsung's surprise profit warning due to weakening chip demand, following Apple's (AAPL) unexpected sales warning just last week.

On Tuesday, the VanEck Vectors Semiconductor ETF (SMH) declined 1.2% and iShares PHLX Semiconductor ETF (SOXX) decreased 1.1%.

Samsung Electronics's operating profit revealed in its earnings guidance was significantly below market expectations, the Korea Times reports. Analysts believed the weak results were due to weakening memory chip prices and stagnating demand.

"Amid growing external uncertainties, the performance of the memory chip business fell significantly due to a drop in demand, in addition to a slowdown in the smartphone business, which resulted in a sharp decline in the entire performance of the company from the previous quarter," Samsung said in a report.

Samsung's Sudden Warning

Samsung's sudden warning is shaking investor confidence in the semiconductor space as Apple's similar caution under a week ago has already kept traders on edge.

“Samsung is sort of a confirmation that Apple is not a standalone situation and that we could probably end up seeing some more disappointments from the technology sector,” Sam Stovall, chief investment strategist at CFRA, told Reuters.

Related: China ETFs Rebound on Round of Stimulus Measures, Trade Talks

Analysts now anticipate S&P 500 technology company earnings to grow 8.5% in the fourth quarter, compared to the earlier estimated 13.7% in October, according to Refinitiv IBES data. Earnings for the overall S&P 500 are expected to rise by 14.8%.

Semiconductors also bucked the broader U.S. market trends Tuesday as major indices eked out slight gains on hopes of progress in the U.S.-China trade talks.

“China news is helping,” Stovall added. “We had a successful retest of the Christmas Eve low last Thursday and investors are piling back in because they think the worst is behind us.”

For more information on the tech segment, visit our technology category.

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