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Broadcom’s Earnings Dampen Hopes of a Semiconductor Rebound

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Jun. 17 2019, Published 1:45 p.m. ET

Semiconductor earnings feel the pain of the US-China trade war 

The US-China trade war accelerated in May after both countries hiked tariffs and the US imposed a technology ban on Huawei, the world’s second-largest smartphone maker and the largest mobile infrastructure equipment supplier. The US will decide whether to impose tariffs on an additional $300 billion worth of Chinese imports by the end of June or early July depending on how negotiations progress with China at the G20 Summit.

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The impact of this accelerated trade war has started to be reflected in semiconductor earnings guidance for the second half. Broadcom (AVGO) was the first chip company to report its quarterly earnings after the announcement of the Huawei ban. Broadcom is the world’s largest communications semiconductor company, and despite its vast portfolio and broad customer base across networking, storage, and smartphones, it took a big hit from the Huawei ban and the intensifying trade war.

Broadcom’s earnings show a murky second-half outlook for semis

Broadcom missed its fiscal 2019 second-quarter revenue estimates and cut its full-year revenue guidance by 7%, or $2 billion, pulling down any hopes of a rebound in growth in the second half amid the economic and political uncertainty created by the trade war. On Broadcom’s fiscal 2019 second-quarter earnings call, CEO Hock Tan stated that the company was facing a broad-based slowdown in demand. He explained that export restrictions had encouraged customers to slow purchases and absorb their existing inventories.

Broadcom’s report marks the beginning of a weaker semiconductor earnings season, during which almost all chip companies will likely report weak earnings and lower their guidances for the second half and full year. Intel already reduced its full-year guidance during its first-quarter earnings release, and it could reduce it further during its second-quarter release.

Next in line is Micron Technology, which is set to report its fiscal 2019 third-quarter earnings results on June 25.

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