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Oct. 28, 2019, 7:45 a.m. EDT

Texas Instruments tanks the chip sector and investors’ hopes for a rebound

Poor earnings and forecast send semiconductor stocks down amid concerns about continuing downturn

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By Therese Poletti, MarketWatch


Bloomberg News
A Texas Instruments Inc. power controller chip from an Apple Inc. MacBook Pro.

The recent run-up in semiconductor stocks hit a speed bump Tuesday afternoon that could turn into much more.

Texas Instruments Inc. /zigman2/quotes/202237907/composite TXN +0.78%  gave a forecast that was much worse than expected in a Tuesday earnings report, with a new revenue estimate range that fell as much as a half-billion dollars lower than Wall Street’s consensus revenue estimate. That was not welcome news for investors, who have sent chip stocks higher in recent months on hopes that a downturn for the semiconductor industry would hit its nadir in third-quarter results and start turning around in the final three months of the year.

The Philadelphia Semiconductor Index /zigman2/quotes/210598361/realtime SOX -0.0025%   is up nearly 40% this year, continuing a roller-coaster ride as the semiconductor downturn has persisted. The index has especially surged in the past quarter, adding 6.3% as the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.22%   has gained just 1% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.39%   has declined 1.2%.

/zigman2/quotes/210598361/realtime SOX 1,690.79, -0.04, -0.0025%

Shares of TI tumbled 9% in premarket trading Wednesday, and other semi stocks fell as well, as TI executives blamed broad-based weakness among its customers, plus ongoing trade issues. In addition, the stocks of Intel Corp. /zigman2/quotes/203649727/composite INTC -1.05%  and Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD -0.94%  lost 1.6%, Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +0.34%  fell 1.9% and Xilinx Inc. /zigman2/quotes/209389378/composite XLNX +0.17%  sank 2.1% in Wednesday’s premarket trading.

When analysts tried to get more specific information from the company about what exactly was causing the shortfall, TI executives responded in rather vague generalities while refusing to call a bottom to the downturn.

“It is due to macro events, and specifically, the trade tensions, and if you think about when there’s tensions in trade and obstacles to trade, what do businesses do? They become more cautious and they pull back, and we are at the very end of a long supply chain,” TI Chief Financial Officer Rafael Lizardi told analysts. “This thing we’ve been in, it [has been] for four quarters and it’s going to be longer than that.”

Some analysts wondered if TI’s issues were due to its new strategy to sell more chips directly to customers and to cut ties with some of its biggest distributors . But TI executives said that was not a factor and that its changes in distribution and having a more direct relationship with its customer “yields more rewards than it does risk, and it gives us greater access to those customers.”

“Customers are just far more cautious than they were, certainly a year ago, but even 90 days ago, and many of them talk about the caution. They mention the trade tensions that we know have been happening, and have been kind of accumulating over the last three or four quarters,” Lizardi said when asked for more details behind the new guidance.

If TI is an example, investors may have to let go of the notion of a near-term recovery, as this column has warned since a second-half rebound was originally suggested. Combined with disappointments from IBM Corp. /zigman2/quotes/203856914/composite IBM +0.37%  and Netflix Inc. /zigman2/quotes/202353025/composite NFLX -0.39%  last week, tech’s earnings season has gotten off to a rocky start, and all eyes now move to Xilinx and Intel as they prepare to give more info on the chip sector later this week.

/zigman2/quotes/202237907/composite
US : U.S.: Nasdaq
$ 117.01
+0.91 +0.78%
Volume: 3.01M
Nov. 22, 2019 4:00p
P/E Ratio
21.74
Dividend Yield
3.08%
Market Cap
$108.53 billion
Rev. per Employee
$528,105
loading...
/zigman2/quotes/210598361/realtime
US : Nasdaq
1,690.79
-0.04 -0.0025%
Volume: 138,687
Nov. 22, 2019 5:16p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,110.29
+6.75 +0.22%
Volume: 1.63B
Nov. 22, 2019 5:10p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,875.62
+109.33 +0.39%
Volume: 218.58M
Nov. 22, 2019 5:10p
loading...
/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 57.61
-0.61 -1.05%
Volume: 15.69M
Nov. 22, 2019 4:15p
P/E Ratio
13.52
Dividend Yield
2.19%
Market Cap
$253.26 billion
Rev. per Employee
$659,665
loading...
/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 39.15
-0.37 -0.94%
Volume: 56.93M
Nov. 22, 2019 4:15p
P/E Ratio
202.22
Dividend Yield
N/A
Market Cap
$44.01 billion
Rev. per Employee
$641,089
loading...
/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 210.89
+0.71 +0.34%
Volume: 5.60M
Nov. 22, 2019 4:15p
P/E Ratio
53.93
Dividend Yield
0.30%
Market Cap
$128.63 billion
Rev. per Employee
$882,428
loading...
/zigman2/quotes/209389378/composite
US : U.S.: Nasdaq
$ 90.61
+0.15 +0.17%
Volume: 1.91M
Nov. 22, 2019 4:15p
P/E Ratio
24.47
Dividend Yield
1.63%
Market Cap
$22.75 billion
Rev. per Employee
$723,353
loading...
/zigman2/quotes/203856914/composite
US : U.S.: NYSE
$ 134.34
+0.50 +0.37%
Volume: 3.30M
Nov. 22, 2019 6:30p
P/E Ratio
15.61
Dividend Yield
4.82%
Market Cap
$118.53 billion
Rev. per Employee
$208,845
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 310.48
-1.21 -0.39%
Volume: 5.97M
Nov. 22, 2019 4:15p
P/E Ratio
99.09
Dividend Yield
N/A
Market Cap
$136.60 billion
Rev. per Employee
$2.22M
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Therese Poletti is a senior columnist for MarketWatch in San Francisco. Follow her on Twitter @tpoletti.

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