U.S. Markets closed

Semiconductor Stocks at Risk as Macroeconomic Woes Linger

Radhika Pujara

As we conclude first-quarter 2019, most of the discussions are centered on the near-term cloudy outlook for the semiconductor space and performance of the chip-makers.

Notably, imposition of tariffs owing to trade war between the United States and China took a toll on chipmakers in the later part of 2018 and first-quarter 2019. China is one of the biggest markets for semiconductors, while the United States is the largest semiconductor manufacturing country.

Moreover, the Semiconductor Industry Association on Mar 4 stated that global semiconductor sales totaled $35.5 billion in January, declining 5.7% on a year-over-year basis and 7.2% sequentially.


Recent Developments Keep Investors Cautious

Samsung SSNLF recently notified that it anticipates missing first-quarter 2019 earnings expectations owing to weaker memory and display-end markets.

Moreover, it is to be noted that Micron MU reported disappointing financial results for second-quarter fiscal 2019 that ended Feb 28, 2019. Higher-than-expected decline in DRAM and NAND pricing, seasonality, weak smartphone and enterprise server sales, inventory adjustments with several key customers, pause in cloud hardware spending and Intel’s CPU shortages adversely impacted the company’s performance.

Recently, prominent German chip maker, Infineon Technologies AG IFNNY lowered fiscal 2019 outlook citing uncertainty in the macroeconomic conditions and sluggishness in the end markets. Further, Infineon claims that declining vehicle sales, primarily in China which accelerated in February, resulted in sharp increase in dealer inventories.

Chip Suppliers at Risk

The issuance of a tepid outlook and related macroeconomic woes makes us apprehensive about near-term performance of other chip makers. NXP Semiconductors NXPI, Applied Materials, Inc. AMAT, Skyworks Solutions Inc. SWKS and Cirrus Logic CRUS are a few stocks in the space with significant exposure to China.

Notably, each of the companies is witnessing downward estimate revision in the current quarter earnings and has underperformed S&P 500 in the past year.

One Year Price Performance



NXP Semiconductors is plagued with sluggish demand in communication infrastructure and industrial end markets, which are anticipated to weigh on its first-quarter 2019 results as well.

Further, issues surrounding Brexit is creating an uncertain environment in the automotive market for the Zacks Rank #4 (Sell) stock.

Notably, in the past 60 days, NXP Semiconductors’ current year earnings estimates moved down 9.8% to $7.56.

Moreover, Applied Materials’ high fixed cost structure remains a concern for its margin expansion. Additionally, sluggish smartphone market, especially in China, and its impact on chip demand remains a woe.

Further, the company issued a weak guidance for the upcoming quarter due to declining chip demand. Furthermore, management anticipates the industry spending on manufacturing equipment to be lower in 2019, which is likely to hinder the Zacks Rank #4 stock’s near-term results.

Notably, in the past 30 days, Applied Materials’ current year earnings estimates moved down from $2.98 to $2.94.

Skyworks has been bearing the brunt of escalating operating expenses, which are anticipated to limit margin expansion in the near term.

Further, significant pricing pressure, stiff competition from peers and high concentration risks are other headwinds for this Zacks Rank #4 stock.

Notably, in the past 60 days, Skyworks’ current year earnings estimates moved down 4.2% to $6.55.

Cirrus Logic is hurt by persistent weakness in smartphone unit sales. Soft sales of portable audio products shipping in smartphone are major headwinds.

Moreover, lackluster iPhone sales are likely to impede this Zacks Rank #5 (Strong Sell) stock’s near-term results.

Notably, in the past 30 days, Cirrus Logic’s current year earnings estimates moved down 1.6% to $2.39.

To Conclude

Omnipresence of semiconductors, positive development on the US-China trade-war front, and expected improvement in declining NAND pricing in second-half of 2019 is likely to revive growth later in the year. As of now, we need to wait a while till these developments materialize.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>