Chip Selloff Goes Global as Analysts Debate `Cycle Peak'

(Bloomberg) -- Global semiconductor stocks are finally pausing for breath.

A disappointing forecast from heavyweight Texas Instruments Inc. as well as cautious JPMorgan Chase & Co. comments on demand for Apple Inc.’s iPhone X sent U.S. chipmakers tumbling 2.5 percent, the most since November. The group had climbed almost 10 percent in a torrid start to the year. Earlier, Asian and European semi makers also retreated.

Wednesday’s selloff left the Philadelphia Semiconductor Index headed for just its third decline of the year, after it extended 2017’s 38 percent rally. At the same time, the relative strength index (RSI) on the index climbed to almost 75 on Tuesday, above the 70 level that some traders see as a sign an asset is overbought. Chipmakers in the S&P 500 had the third-best performance among 24 S&P 500 groups through Tuesday.

Texas Instruments fell as much as 8.5 percent in the U.S., while peers including Analog Devices Inc. and Microchip Technology Inc. also dropped. Europe’s STMicroelectronics NV and Infineon Technologies AG both slid at least 2.3 percent. Among Asian Apple suppliers, Largan Precision Co. Ltd. and Win Semiconductors Corp. declined after JPMorgan analyst Narci Chang cut some first-quarter estimates, citing “more signs of weakening iPhone X orders.”

Here’s a roundup of what Wall Street is saying about Texas Instruments’ results.

RBC Capital Markets, Amit Daryanani

(Outperform, lowers PT to $122 from $127)

In a note titled “cycle peak or bump in the road,” Daryanani wrote that “lead times have been stable, customer cancellations are within normal range, channel inventory is balanced and customer satisfaction ratings remain high -- not the ingredients that suggest a cycle has peaked.”

Texas Instruments reported an in-line quarter “marking the first quarter in nearly two years that revenues were not at the high-end/above the guided range.”

Summit Redstone, Kinngai Chan

(Hold)

A conservative 1Q outlook “is appropriate as we believe the semiconductor supply chain is experiencing inventory correction in the wireless smartphone sector.”

“While we continue to see strength in the industrial and auto end-markets due to content increase, our industry research leads us to believe that the demand in the communications infrastructure and enterprise systems end-markets continues to remain somewhat mixed.”

Still, Chan sees Texas Instruments as “one of the best large-cap diversified analog companies” due to exposure to industrial, consumer and auto markets.

Jefferies, Mark Lipacis

(Buy, PT $150)

Texas Instruments’ margins are at all-time highs, and y/y revenue growth decelerated to 10% from 12%: “two classic semiconductor ‘cycle peak’ indicators.”

The 2c EPS miss coupled with a 9-day increase of inventories “reinforced a deep-seated suspicion in the minds of many that it is the end of the ‘cycle’ for TXN.”

Still, Lipacis doesn’t believe margins have peaked and, in terms of inventories, “we think TXN is replenishing depleted inventories and building for higher service levels.”

Morgan Stanley, Joseph Moore

(Equalweight, raises PT to $101 from $92)

“In-line quarter/guidance is fine, though it probably doesn’t justify the stock rally” into results.

“Tax savings look significant in 2019, but basically in line with investor expectations. Guidance implies 1Q very slightly less than seasonal, which seems prudent after an exceptional 2017.”

Susquehanna, Christopher Rolland

(Positive, raises PT to $130 from $110)

Estimated 2019 EPS “is helped by ~$0.75 thanks to the new tax plan. That said, this benefit was well discounted by the Street as evidenced by the strong stock performance in the quarter. Outside of this tax benefit, it was just a ho-hum quarter.”

“Regardless of the near-term noise, we urge investors to focus on the long-term story and owning one of the most durable franchises in all of semis.”

--With assistance from Kasper Viita and Cecile Vannucci

To contact the reporter on this story: Beth Mellor in London at bmellor@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Paul Jarvis, Scott Schnipper

©2018 Bloomberg L.P.