Why chip stocks are falling despite semiconductor shortage, strong early earnings

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Texas Instruments’ forecast concerns analysts, who see the potential for sudden demand drop that will cause a chip glut, but who also call the outlook 'meaningless' and 'nonsensical.'

Investors pumped the brakes on chip stocks Thursday, as fears of a repeat of 2018’s supply glut rose with Texas Instruments Inc. forecasting decelerating sales growth despite a global semiconductor shortage.

In 2018, the chip industry, on the whole, was on fire with stocks at record highs and increasing chip prices driving record sales. Those rising prices led many customers to double- and triple-buy chips before prices got even higher. The buying practice was so widespread that suddenly, late in 2018, demand ground to a halt, and chip makers were saddled with a glut of inventory that took several quarters to unload.

Given that Texas Instruments does not break out end-market sales, Danley estimates 20% of revenue is from auto customers, 37% from industrial ones, and 27% from personal electronics. Texas Instruments breaks revenue out into sales of analog electronics, which convert real-world data such as sound or temperature into digital data, and embedded processors, which take that digital data and use it to perform specific tasks.

Lipacis called Texas Instruments an “analog renaissance beneficiary” over the next five years, in that those analog sensors play heavily into internet-of-things, or IoT, devices “which will ship in the 10s of billions of units.”Bernstein analyst Stacy Rasgon, who has a market perform rating and a $180 price target, has commented before that chip demand, especially CPUs for laptops, is showing signs of peaking.

 

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