The Semiconductor Sector’s Downturn: Should TXN Investors Worry?

Puja Tayal - Author

Nov. 20 2020, Updated 11:23 a.m. ET

Raymond James analyst warns of a cyclical downturn

Most semiconductor companies are set to announce their third-quarter earnings later this month. According to CNBC, Raymond James analyst Chris Caso has cut his 2019 earnings estimates for eight semiconductor stocks, citing weakness in the business.

Earlier, CNBC reported that Caso downgraded the semiconductor sector as he believed the sector had entered a “cyclical downturn.” His comments came a day after the Trump administration imposed a second round of tariffs on $200 billion in Chinese imports, including ICs (integrated circuits) and connected devices.

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Third-quarter earnings important for semiconductor investors

The eight companies for which Caso cut his 2019 earnings estimates included Texas Instruments (TXN), Analog Devices (ADI), Microchip Technology (MCHP), ON Semiconductor (ON), and Maxim Integrated (MXIM). These companies supply microcontrollers, analog ICs, and mixed-signal chips, which are used in almost all electronics. The sector’s weakness has sent the VanEck Vectors Semiconductor ETF (SMH) down 9.8% this month, with TXN’s stock falling 7.7% and MCHP’s stock falling 11.6%.

According to CNBC, Caso believes the companies could address the weak business activity in their upcoming earnings announcements, which could cause semiconductor stocks to bottom out. As the stocks would then have nowhere to go but up, Caso expects them to recover between November and next March.

Texas Instruments at a glance

Texas Instruments has a broad customer base spread across five end markets: industrial, automotive, personal electronics, communication equipment, and enterprise systems. The company has been focusing on the fast-growing industrial and automotive semiconductor markets. Its main objective is to increase its free cash flow per share. In this series, we’ll discuss what investors could expect for Texas Instruments’ third-quarter earnings, scheduled to be released on October 23.

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