When I saw the news that Intel's (Nasdaq: INTC) stock was halted, my first thought was that we were going to see news that Intel had closed the deal to buy Infineon's (Nasdaq: IFNNY) wireless chip business.
Nope.
Instead, Intel announced a pretty sizable revision to its third quarter guidance. Sighting weak PC sales and inventory issues, Intel cut its revenue guidance by $200 million to $1 billion. Keep in mind, this is about six weeks after the company reported earnings, so things must be getting ugly pretty quickly.
In a nutshell, analysts' worries about the semiconductor space seem to be coming true. This should definitely be a concern for Advanced Micro Devices (NYSE: AMD) and Nvidia (Nasdaq: NVDA) given their reliance on the same PC market as Intel.
A bigger question for me, though, is whether this spreads out into other consumer electronics like smartphones/cell phones, PDAs, and so on. That could suck in Maxim (Nasdaq: MXIM), Broadcom (Nasdaq: BRCM), Atheros (Nasdaq: ATHR), Silicon Labs (Nasdaq: SLAB), Qualcomm (Nasdaq: QCOM) and Marvel (Nasdaq: MRVL), as they all have exposure to various consumer-oriented devices like phones, computers, gaming systems, and so on.
On the other hand, names like Texas Instruments (NYSE: TXN), Linear Technology (Nasdaq: LLTC), Analog Devices (NYSE: ADI), ON Semiconductor (Nasdaq: ONNN), and Microsemi (Nasdaq: MSCC) should all be diversified enough that a decline in consumer electronics would not hurt them too badly. Of course, if this decline in consumer devices is simply a part of a much broader overall economic slowdown, all bets are off. After all, nobody is too optimistic about conditions in industrial markets, enterprise hardware and IT, automobiles, or healthcare right now.
Now here is the twist - it would not shock me if this news has minimal impact on the sector. After all, analysts have been racing each other to the bottom; everybody trying to get out their own pessimistic story about the next few months of chip sales. So, this could ultimately strike investors as a revision that was not really so bad as feared. Looking at valuations in the sector, it is pretty clear that there was a fair bit of pessimism anyway, so a little bad news may not change things all that much.
What should investors do? Stick with the stocks that they already liked. I have been positive on names like Microsemi, ON, Analog Devices, and Linear before, so I see no real reason to change now. I am even a little positive on Intel as well - I hope they do not overpay for Infineon (assuming they go ahead with the wireless deal as is commonly rumored), but there is probably some long-term value there.
Disclosure - I own shares of Microsemi
No comments:
Post a Comment