By Wallace Witkowski
The chip sector melted down Friday for its third 6% one-day drop of the year after U.S. regulators moved to pump the brakes on China’s military ambitions as it issued wider restrictions on semiconductor and AI technology that can be sold to the world’s second-largest economy.
On Friday, the U.S. Department of Commerce expanded its list of chip technology that requires a license to be sold to China — essentially a euphemism for a ban if the license can be denied — and the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX +0.37% , which had been down around 3% before the news broke, dropped to close the session down 6.1% at 2,356.75, a closing level that investors last saw on the uptick in early November 2020.
News of the ban was served fresh on the back of Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD +0.19% issuing a $1 billion shortfall warning on expected sales to PC customers late Thursday. That followed last week’s revenue forecast from memory-chip maker Micron Technology Inc.’s /zigman2/quotes/205710729/composite MU -0.25% , which was about $1 billion below Street expectations , prompting analysts to ask whether 2022’s sudden chip glut is worse than the one in 2019. AMD shares led the fall for chip stocks with a 13.9% drop to close at $58.44, with Micron shares down a modest 2.9% at $52.91.
Friday’s drop is only the worst one-day drop on the SOX index since Sept. 13, when it dropped nearly 6.2%. In fact, Friday’s fall is merely the third worst one-day performance of the year for the SOX index with June 16’s fall of just over 6.2% ranking the worst, according to FactSet data.
The Commerce Department’s wider list adds to one from September that focused on AI tech from Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -0.01% . Shares of Nvidia fell 8% to close at $120.76 Friday.
Nvidia shares melted down last month when the graphics processing unit maker disclosed the list of products that needed a license to sell to China, primarily the company’s A100 and H100 data-center AI technology, and estimated a potential $400 million hit in expected third-quarter revenue if licenses were denied. The ban just added to Nvidia’s bleed-out year as it has cut its outlook not just once , not just twice , but three times. Still the largest U.S. chip maker by market cap, Nvidia finished Friday with a $304.2 billion cap.
Bans of chip technology to China are nothing new: A little more than two years ago, a ban focused on the machines needed to make silicon wafers into finished chips, equipment made by companies like Lam Research Corp. /zigman2/quotes/208077897/composite LRCX +0.86% and KLA Corp. /zigman2/quotes/209248041/composite KLAC +0.80% , and in 2018 it was all about Micron and memory chips . Lam shares fell 5.7% Friday, while KLA’s declined 4.1%.
Elsewhere in the sector, shares of Intel Corp. /zigman2/quotes/203649727/composite INTC -2.15% fell 5.4% Friday, while shares of Qualcomm Inc. /zigman2/quotes/206679220/composite QCOM +0.48% declined 3.5% and Broadcom Inc. /zigman2/quotes/200646538/composite AVGO +0.46% shares fell 4%. Shares of Texas Instruments Inc. /zigman2/quotes/202237907/composite TXN +1.64% , which happens to be the largest U.S. supplier of auto chips, fell 4.4%.
As for the third-party fabs that produce the silicon wafers that become microchips, shares of Taiwan Semiconductor Manufacturing Co. /zigman2/quotes/204359850/composite TSM +1.27% shares declined 6.2%, and GlobalFoundries Inc. /zigman2/quotes/230483311/composite GFS -0.11% shares fell 5.2%. Shares of Marvell Technology Inc. /zigman2/quotes/200053236/composite MRVL -5.26% , which in August disappointed with its data-center forecast , also took an 11.7% beating to close at $42.35.
Over the course of 2022, the SOX index has fallen 40% on the year, with shares of both AMD and Nvidia in a freefall of nearly 60%, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.59% has shed 24%, and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.55% has dropped 32%.