Samsung Profit Warning Weighs on Semiconductor Leaders, for Good Reason

Trading around holidays can see some exaggerated moves up or down based on news, but the post-July 4th trading session was looking quite weak for semiconductor leaders after Samsung warned of a short fall. Its profits in the second quarter of 2019 likely fell by more than 56% and revenue was expected to be down over 4% from the second quarter of 2018. The weakness was tied to weak demand for memory chips being magnified by the U.S.-China trade disputes. While the report may have been a slight beat on expectations, it’s just one more thorn in the side of the global chip-making community.

For reference on why chips and semiconductors matter so much for Samsung, roughly three-fourths of its operating income in 2018 was shown to have been tied to memory chips.

Micron Technology, Inc. (NASDAQ: MU), which had already reported earnings on its own, closed down 1-cent at $39.59 on Wednesday and was indicated down almost 1.3% at $39.10 on Friday. Its shares have gained handily since earnings, despite a 39% drop in total revenues. Micron’s recent bounce had shares up almost 25% year-to-date, but its shares are still down 27% from a year ago.

Qualcomm Inc. (NASDAQ: QCOM) closed down 0.5% at $76.63 on Wednesday but was indicated down 3% at $74.30 on Friday. Qualcomm remains in the shadow of an antitrust suit, and Friday’s move is being exaggerated with that impact.

Intel Corporation (NASDAQ: INTC) were indicated down 0.75% at $48.16 on Friday, but that is after a 0.8% gain to $48.52 on Wednesday. Intel remains in the doghouse as its 52-week high is $59.59 and the shares were up barely 3% so far in 2019.

NVIDIA Corporation (NASDAQ: NVDA) was up 0.3% at $162.75 on Wednesday ahead of the holiday, but indications were for its shares to open down over 1.2% at $160.75. NVIDIA shares had been up almost 22% so far in 2019.

Advanced Micro Devices, Inc. (NASDAQ: AMD) had seen a small 0.16% drop to $31.19 on Wednesday, but AMD shares were indicated to open down 1.1% at $30.84 on Friday. AMD is down only about 10% from its 52-week and multi-year high of $34.30, but its year-to-date gain had been about 69%.

Broadcom Inc. (NASDAQ: AVGO) was down over 3.5% at $284.89 on Wednesday as investors digested the news that Broadcom was in advanced talks to acquire Symantec, and its shares were indicated to open down 0.6% more at $283.30 on Friday. Broadcom is down from a 52-week high of $323.20 and its shares were last seen up 12% year-to-date in 2019.

While Micron showed just how weak chip sales have been, the Semiconductor Industry Association reported just on July 1 that semiconductor sales were down 14.6% in 2019 through the end of may. That was also its fifth consecutive negative sales trend.

The most recent short interest data from the June 14 reporting period showed that the major chip stocks had seen increased short selling activity in most of these major semiconductor companies.

Some of the weakness in global semiconductor revenues should have been known. The severity of how that will bite into profits is another matter considering how even a small decline in total revenues drags earnings down so much.