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Semiconductor rally over; stocks sink after Goldman warns of more trouble

When the semiconductor industry came under pressure last year after the weakness in demand deepened, there was widespread speculation the market will rebound in 2019. The positive sentiment was visible in the performance of leading chip stocks at the beginning of the year. However, the optimism waned after the latest quarterly reports indicated the slump will persist longer than expected.

Underscoring the bearish view, research firm Goldman Sachs warned of a bleaker demand/price scenario for the sector in the coming weeks. The market’s reaction was pretty quick and most chips stocks opened Friday’s session notably lower.

By afternoon, Nvidia (NVDA) was down 1% and Micron (MU) lost more than 3%. Though Advanced Micro Devices (AMD) opened down 1.2%, it regained the lost ground as trading progressed. Among others, Lam Research (LRCX) and Intel (INTC) were trading down 1% and 1.5% respectively. Interestingly, these stocks had witnessed double-digit growth at the beginning of the year, amid speculation that the sector is on the recovery path.

Adding to the negative market sentiment, North Carolina-based microprocessor maker Qorvo guided fourth-quarter earnings far below analysts’ forecast, in a report published Thursday evening, though its third-quarter earnings came in above estimates.

Goldman cautioned that demand will continue to falter in the coming weeks as there is no sign of recovery in the smartphone market, apparently referring to the iPhone crisis that affected several Apple (AAPL) suppliers who eventually cut their outlook for the current fiscal year.

According to the analyst, prices will remain squeezed by the excess supply of microprocessors – including those meant for graphics cards used by cryptocurrency traders – weakening the fundamentals of chip stocks.  As per the latest estimate, earnings of semiconductor firms will fall more than the $3-$4 decline initially predicted.

Related: Cypress Semiconductor soars after Q4 beat

The falling sales of smartphones, including premium brands like iPhone, and other semiconductor-supported devices continue to weigh down on the orders for DRAM and NAND memory chips, with the latter experiencing a prolonged downturn.

Meanwhile, the optimists among market watchers are of the view that the memory market crisis will ease significantly in the second half of 2019, after deepening in the early months.

 

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text

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