When chip companies report June-quarter earnings starting next month, many Wall Street analysts expect them to offer a lower outlook than previously expected for the rest of the year. Semiconductor stocks are down as a result.
"In our conversations and observations over the last week, there has been a clear move toward downward revisions," Susquehanna Financial Group analyst Mehdi Hosseini said in a note to clients Sunday.
Also, signs of a downturn ahead in the chip cycle include abnormally high inventories, Hosseini said.
"Softening consumer demand, jitters about the interest rate environment, and the consequent decreases in IT budgets and spending will drive demand softening across the corners of the semi supply chain," he said.
Semiconductor Stocks Down 31% This Year
Most semiconductor companies haven't acknowledged the downturn in expectations yet, Hosseini said. He expects to see many outlook revisions during the second-quarter earnings season.
Among semiconductor stocks, Hosseini has positive ratings on GlobalFoundries, Micron Technology and Rambus.
Year to date, the Philadelphia semiconductor index, known as SOX, is down 31.2%. That compares with a decline of 18.2% for the S&P 500 index. The SOX contains the 30 largest semiconductor stocks traded in the U.S.
The second-quarter earnings season for semiconductor stocks will kick off in mid-July with a report from Taiwan Semiconductor Manufacturing.
In the meantime, Micron will post its fiscal third-quarter results late Thursday.
Fewer 'Golden Screws' In Supply Chain
The semiconductor industry is showing early signs of supply loosening, Jefferies analyst Mark Lipacis said in a note to clients Thursday. Further, the number of hard-to-find components for completing products, known as "golden screws," is decreasing, he said.
"Lead times are stable at extended levels, however, golden screw lists and the sense of urgency in the supply chain have declined," Lipacis said. Parts brokers have told him that the number of "golden screws" they are chasing has gone from a hundred and above to one or two dozen.
Also, Lipacis reiterated his buy ratings on several semiconductor stocks. They include Advanced Micro Devices, Analog Devices, NXP Semiconductors, Onsemi and Texas Instruments.
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