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Why Did Semiconductor Stocks Dip This Morning?

Ryan McQueeney
Crown (CCK) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Shares of several major semiconductor industry stocks were down in early morning trading Wednesday after the latest quarterly earnings reports from equipment suppliers ASML Holding ASML and Lam Research LRCX caused hesitation.

Nevertheless, there were plenty of positives to take away from both of these reports. Lam Research surpassed estimates on the top and bottom lines, reporting total revenue growth of 34.2% on 19% higher shipments.

Dutch equipment maker ASML also posted earnings and revenue beats. The firm also notched net sales growth of 35.7% and adjusted earnings growth of 12.3%. However, ASML said it expects gross profit margin to slip to about 43% in the second quarter from 48.7% in the first quarter.

Lam Research investors might also be concerned about slumping margins. The company said non-GAAP gross margin for the March quarter was down about 80 basis points from the previous quarter to 46.8%, and it expects that figure to fall in the range of 46.5% to 48.5% for the current quarter.

Lam also mentioned that it expects shipments to be between $2.85 billion and $3.15 billion in the quarter, which is slightly sluggish compared to the $3.13 billion in shipments witnessed during the March period.

Overall, Lam Research guided for adjusted earnings in the range of $4.80 to $5.20 per share and revenue of $2.95 to $3.25 billion—both of which exceeded our previous consensus estimates.

Still, both LRCX and ASML were met with volatility on Wednesday morning. Lam Research opened lower and quickly dipped to an intraday low of $196.50 per share, down about 7.5% from Tuesday’s close. ASML shares slumped as much as $9.70, or 4.6%, in early trading hours.

Analysts were quick to declare Lam Research’s post-earnings selloff a buying opportunity, with teams from Evercore ISI, Stifel, and B. Riley FBR all maintaining bullish stances.

“At or near $200, we are buyers all day long,” Evercore said in a note. “Put simply, the cost of adding each new memory bit is rising significantly across both DRAM and NAND, which should sustain elevated WFE for years to come.”

Stifel elaborated further, saying Lam Research’s shipments outlook “could embolden bears who believe we are at the 'peak' of the cycle and in particular, on the memory front, where there are concerns on oversupply and overcapacity,” but reiterated its buy rating for the stock.

But mixed reactions to the reports were enough to inspire selling throughout the semiconductor space early Wednesday morning. Shares of Micron MU opened lower before surging back to Tuesday’s close, Texas Instruments TXN was down as much as 1%, and Applied Materials AMAT dipped nearly 5%.

Overall, the iShares PHLX Semiconductor ETF SOXX slumped $25.77, or 1.9%, to a mid-morning low of $1331.95 per share. However, the fund bounced of this daily low around 10:30 am EST.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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