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Semiconductor Companies Hit by China’s Slowing Car Market

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Correlation between Infineon and Chinese car sales

German (EWG) chip maker Infineon Technologies has lowered its annual revenue growth guidance for fiscal 2019 twice in two months, citing declining car sales in China (FXI). The news comes after several analysts and third-party research companies gave a bleak 2019 outlook for the automotive market.

In the past few years, Infineon has benefited from growing demand for electric and hybrid vehicles in China, the world’s largest automotive market. Its revenue has risen by 11.7%, 9.1%, and 7.6% in the last three years, respectively. However, the economy’s slowdown is impacting car sales around the world, especially in China.

Automotive market outlook bleak

According to Trading Economics and China Association of Automobile Manufacturers, vehicle sales in China fell 16% YoY (year-over-year) in January 2019 and 13.8% in February 2019, marking an eighth consecutive month of annual decline. While demand for passenger and commercial vehicles fell, demand for electric and hybrid cars rose.

According to Cox Automotive, sales of new, light vehicles in the United States rose YoY from ~17.2 million vehicles to ~17.3 million last year. However, it expects sales to fall to 16.8 million vehicles this year.

Germany is home to some of the world’s biggest automakers. The IHS Markit Germany Manufacturing PMI has plunged to 44.7 this month from 47.6 in February, marking its biggest contraction since 2012. The PMI contracted due to a slowdown in the automotive industry and economic uncertainty caused by Brexit and the US-China trade war. The weak German PMI figures sent stocks of several analog chip makers, such as Texas Instruments (TXN) and Analog Devices (ADI), down more than 2%.

The IHS Markit US Manufacturing PMI also fell this month, to 52.5 from 53 in February. There are very few data points that support a turnaround in demand in fiscal 2019. Infineon is one of the many chip makers that lowered its guidance due to weak demand in China.

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