Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Chip stocks were falling across the board today after Micron (MU -3.44%) said it would lay off 10% of its staff and offered weak guidance for its fiscal second quarter.
The update was the latest data point out of the semiconductor sector to show prices falling as demand pulls back after a boom during the pandemic. Unsurprisingly, the news weighed on several of Micron’s peers, as the semiconductor industry tends to be cyclical and companies are subject to the same market forces.
As of 1:06 p.m., Taiwan Semiconductor (TSM -2.41%) was down 3.7%, Qualcomm (QCOM -3.41%) was off 5%, NXP Semiconductors (NXPI -3.62%) had fallen 5.1%, and Marvell (MRVL -4.63%) had given up 5.6%. At the same time, Micron was down 5.1% and the Nasdaq fell 3.5% as broader economic data also seemed to weigh on the market.
Image source: Getty Images.
Micron’s first-quarter results were mostly in line with estimates, though the layoffs and weak second-quarter guidance seemed to spook the market. For the current quarter, the company expects an adjusted loss per share of $0.52 to $0.72, compared to the consensus at a per-share loss of $0.30, as it’s plagued by excess inventory, falling demand, and lower prices.
Micron makes DRAM and NAND chips, which are used primarily for memory in computers, smartphones, and other devices. The company said that both DRAM shipments and prices declined in the low-to-mid-20% range, while NAND shipments fell in the mid-teens range and prices declined in the low-20% range.
The implications for the rest of the industry seem straightforward, as demand is falling and the industry is oversupplied, which is weighing on prices.
As a foundry or the company that actually manufactures most of the world’s semiconductors, Taiwan Semi may be more insulated than the designers that make up its customers. CEO C.C. Wei said on the company’s recent earnings call that the company’s pricing is consistent and unaffected by the economic cycle, which should help it resist lower end prices for chips. However, falling end demand will have an impact on Taiwan Semi, as ultimately it’s paid based on volume.
For now, the company seems unaffected by the industry headwinds, as monthly sales in November jumped 50% from the prior year.
Qualcomm is a diversified chipmaker that designs semiconductors for everything from 5G to AI to mobile devices and laptops. While Qualcomm isn’t a direct competitor to Micron, it is subject to some of the same industry trends.
Qualcomm, which is more focused on telecommunications and wireless technology, posted strong growth in its most recent quarter, with revenue up 22%, though it lowered its guidance, forecasting a low-double-digit decline in mobile handsets for calendar 2022. It also said elevated inventory levels are impacting profitability and called for revenue and profits to decline in the current quarter.
NXP Semiconductors is another diversified chip company that makes microprocessors as well as chips used for networking, security, and wireless communication. Its biggest segment is automotive. Like Qualcomm, NXP reported strong results in its most recent quarter, but the company’s guidance called for a slowdown in revenue growth and some slight margin compression. However, NXP looks better positioned than its peers, especially as demand from its automotive and industrial customers has been strong.
Finally, Marvell has a similar business to NXP and is coming off strong growth in the third quarter. However, the company is also experiencing inventory-related headwinds and is calling for a slight decline in adjusted EPS in the current quarter. Management also noted a decline in demand from its Chinese customers due to a changing macroeconomic situation. In October, Marvell also cut research jobs in China due to new restrictions on U.S. semiconductor companies selling chips to China or operating there in some cases.
Micron is seen as a bellwether in the semiconductor industry, as its memory and storage products are widely used. With fears of a global recession rising heading into 2023, things could get worse for the chip sector before they get better. However, the industry should eventually recover.
Qualcomm, NXP, and Marvell are all vulnerable to a downturn to a varying degree, while Taiwan Semi looks to be the most stable of the bunch here.
Given Micron’s status and influence over the industry, investors should pay attention to its results going forward as an indicator of the industry’s health.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Marvell Technology and NXP Semiconductors. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
Market data powered by Xignite.
