The semiconductor sector was facing one of its worst weeks in an already lousy year following more evidence that the COVID-19 chip sector boom was drawing to a close.
On Friday, the PHLX Semiconductor Index SOX dropped nearly 5% as chip stocks fell across the board with shares of chip-equipment maker Lam Research Corp. LRCX leading losses, down 7.2%, and Broadcom Inc. AVGO among the better performers with a 1.5% decline.
That puts the SOX index on track for a 9.6% fall on the week, its worst week since the week ending Feb. 28., when it shed 9.8%, according to FactSet data. The chip index is already down 38% for 2022, compared with a 21% loss on the S&P 500 index SPX and a 30% drop on the tech-heavy Nasdaq Composite Index COMP.
Late Thursday, Micron Technology Inc. MU stoked Wall Street fears that customers may have loaded up on chips during the COVID-19-triggered shortage and were now holding significant inventories after the memory-chip maker forecast quarterly sales that were more than $1.5 billion below expectations. Analysts on Friday wondered if weakness in the PC and consumer markets could also extend to data-center sales. Micron shares were off 3.4% Friday.
Read: The chip boom likely over, as Micron says it’s in a ‘downturn’
Heading into Micron’s earnings, analysts were looking for more clues as to whether chip demand had peaked given the pessimism about the sector that Wall Street has held over the year.
What the industry and Wall Street wants to avoid is a situation like 2018, when chip prices soared, along with chip-maker stock prices, and customers double- and triple-bought chips to lock in prices before they could shoot any higher. As a result, sales eventually crated and chip makers were stuck with huge inventories that took months to unload. Given that chip stocks reached record highs in late 2021 along with record sales, investors are being extra cautious this time around.
Like Lam, suppliers to the chip-making industry were getting hit the hardest Friday with shares of KLA Corp. KLAC down 6.8%, Applied Materials Inc. AMAT down 5%, and ASML Holding NV ASML off 5.3%. This past earnings season Applied Materials, ASML, Lam, and KLA all lamented that continuing supply-chain issues were hurting sales.
Next, were shares of third-party fab giant Taiwan Semiconductor Manufacturing Co. TSM, which were down 5.8%.
Meanwhile, shares of Nvidia Corp. NVDA fell 4.1% Friday, while Advanced Micro Devices Inc. AMD declined 3.7%, Texas Instruments Inc. TXN declined 3.1%, Qualcomm Inc. QCOM fell 3.2%, GlobalFoundries Inc. GFS declined 3.5%, Intel Corp. INTC shares declined 2.9%, Marvell Technology Inc. MRVL shares fell 2.5%, and NXP Semiconductors NV NXPI shed 1.3%.
In comparison, the S&P 500 was up 0.8% and the Nasdaq was up 0.6% Friday.
Additionally, the sector was under pressure as Senate Republican leader Mitch McConnell threatened to derail a bill for $52 billion in funds earmarked to build up U.S. semiconductor manufacturing if Democrats revived their stalled climate and social policy package.
For the year, some of the worst performers on the SOX index include Marvell with a 51% drop, Nvidia down 50%, AMD down 49%, Applied Materials down 45%, Lam down 45%, ASML down 44%, and Micron down 42%.
Shares of General Motors Co. undefined dropped 1.7% in premarket trading Friday, after the automaker warned of a second-quarter earnings shortfall, as vehicle wholesale volumes were hurt by the timing of semiconductor shipments and other supply chain disruptions. The company expects net income for the quarter to June 30 to be between $1.6 billion and $1.9 billion, well below the FactSet consensus of $2.46 billion. The company affirmed its full-year outlook, however, as the supply disruptions are expected to be temporary. "[W]e had a total of approximately 95 thousand vehicles in our inventory that were manufactured without certain components as of June 30, 2022, a majority of which were built in June," the company said in a statement. "We expect that substantially all of these vehicles will be completed and sold to dealers before the end of 2022." GM still expects 2022 net income of $9.6 billion to $11.2 billion, which surrounds the FactSet consensus of $10.24 billion. The stock has tumbled 45.8% year to date through Thursday, while shares of rival Ford Motor Co. undefined have dropped 46.4% and the S&P 500 undefined has slumped 20.6%.
Wallace Witkowski came to MarketWatch from the Associated Press in New York, where he was a business reporter specializing in pharmaceutical companies. He previously reported for trade publications in covering the drug and medical-device industries back to 1998. Based in San Francisco, his focus is on U.S. equities. Follow Wally on Twitter at: @wmwitkowski.
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