A change in Microchip Technology’s revenue forecasts
Microchip Technology Inc. (MCHP) revised its revenue projection downward for this quarter to $546 million. The earlier revenue forecast for the current quarter was $560 million–$575 million. The revised forecast is ~3.7% lower than the average of the company’s previous guidance.
Microchip Technology’s results and announcements are roughly considered a barometer of industry demand. But its trimmed revenue forecast of 3.7% seems a little out of proportion to warrant such a dramatic fall in share prices across the entire semiconductor space.
Responding to Microchip Technology’s news, ETFs with significant exposure to semiconductor companies—the iShares PHLX SOX Semiconductor Sector ETF (SOXX) and the VanEck Vectors Semiconductor ETF (SMH)—fell 6.9% and 6.6%, respectively, on October 10, 2014.
Why Intel and Texas Instruments responded to Microchip Technology’s announcement
A probable reason why Intel (INTC) and Texas Instruments’ (TXN) share prices fell is Microchip Technology hinting at projected weakness in the overall global semiconductor industry. Low demand for chips in China and inventory buildups at chip distributors were the reasons the company cited for the slowdown in the space.
Both Intel and Texas Instruments derive significant amounts of their revenue and profits from international markets. In 2013, the U.S. contributed ~19% towards Intel’s overall revenues. Singapore, China, and Taiwan were other major markets. So a drop or expected drop in demand on the global front would have serious repercussions on Intel’s business.
Texas Instruments’ analog segment roughly contributes 60% to its total revenue. Microchip Technology’s announcement specifically included the analog business, pushing Texas Instruments’ stock price further down than Intel’s.
According to Bill McClean, IC Insights president, the global semiconductor market is expected to grow by 7% to reach $351 billion in 2014. As the chart above shows, analysts have made various forecasts about the industry. They all agreed that 2014 should be a growth year for the semiconductor industry. But quarterly results will prove whether this is true.
No official announcement by Intel or Texas Instruments about their quarterly results expectations
For fiscal 2014, Intel expects 5% revenue growth on account of record microprocessor shipments in 2Q14. In 2Q14, the company generated 8% revenue growth year-over-year. A slower-than-expected fall in global PC shipments and strong performance in high-growth areas contributed to this growth.
In 2Q14, Texas Instruments earned 8% growth in its revenues, including 14% revenue growth in its analog operations. No announcement from Intel and Texas Instruments has come in response to Microchip Technology’s announcement. Also, decent growth in previous quarters does provide some assurance that until these companies declare their quarterly results, there’s nothing to panic about.