Samsung Joins Micron, KLA-Tencor in Global Chip Sector Rout

(Bloomberg) -- Semiconductor stocks are having a rough day as concern about weakening industry demand drags the sector lower.

KLA-Tencor Corp., which makes equipment used in the production of semiconductors, softened its outlook for the remainder of the year as the December quarter “feels like it will be up a little less” than originally expected, Chief Financial Officer Bren Higgins said at the Citi Global Technology Conference in New York. That exacerbated persistent fears that demand is plateauing as smartphone shipments taper off and inventory builds.

Micron Technology Inc. fed the ruckus, leading declines in the Philadelphia Semiconductor Index after it was removed as a top semiconductor large-cap idea at Baird. Samsung Electronics Co., the world’s largest memory chipmaker, slid as much as 3.7 percent while rival SK Hynix Inc. fell almost 6 percent. Japanese chip gear giant Tokyo Electron Ltd. tanked 7.4 percent as Advantest Corp. shed 8.5 percent.

“Earnings trend in semiconductor sector is bound to weaken further as end-demand remains lack-luster while orders have been at very elevated levels,” said Amir Anvarzadeh, senior strategist with Asymmetric Advisors in Singapore. Expectations that there’d be a sharp but short-lived correction in orders are proving over-optimistic, he added.

Concern about peaking gross margins, DRAM pricing topping out and oversupply in NAND products drove Baird analyst Tristan Gerra to remove Micron. That rationale echoes comments from both KLA-Tencor and Morgan Stanley analyst Shawn Kim, who noted that chip memory markets are weakening going into the fourth quarter because of inventory and pricing worries.

Samsung Joins Micron, KLA-Tencor in Global Chip Sector Rout

The flurry of bad news pushed Micron and KLA-Tencor to the bottom of the S&P 500 Index Thursday. Micron slid almost 10 percent in New York, its worst day in almost three years, while KLA-Tencor shed 9.7 percent, the stock’s biggest decline in more than two years.

Much of the 30-member Philadelphia Semiconductor Index declined, including Advanced Micro Devices Inc. London-based Arete Research Services believes the company may struggle to beat expectations next quarter given headwinds in graphic processing units and overly bullish expectations from analysts.

Still, “2018 continues to be a very strong year for KLA-Tencor and for the industry,” Higgins said at the Citi conference, noting that the shift going into first half of 2019 “looks pretty good.”

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