Maxim Falls After Automotive Growth Stalls, Peers Follow Lower

Shares of semiconductor companies that make automotive chips are underperforming the broader market and the sector this afternoon after Maxim (MXIM) suggested a slowdown in automotive may be on the horizon, despite reporting third quarter earnings yesterday that came in ahead of expectations. Earlier today, Evercore ISI downgraded shares of Maxim.

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EARNINGS BEAT: For the quarter, Maxim reported earnings per share excluding items of 56c on revenue of $581.22M, beating analysts' estimates of 53c and $575.73M, respectively. EPS for the current quarter were forecast at 59c-65c on revenue of $590M-$630M. Prior to the earnings report, analysts expected Q4 EPS of 58c on revenue of $597.8M.

FEARS OF AUTOMOTIVE SLOWDOWN: The importance of Maxim's automotive sector to investors was made most evident during the Q&A part of the chipmaker's quarterly earnings call when BMO Capital Markets analyst Ambrish Srivastava said, "To my knowledge, first time, at least I'm hearing, a company talk about a slowdown which has been feared by investors and everybody for a while." Maxim's growth in automotive has been on a torrid pace over the last few years and now accounts for 21% of total revenue. Bruce Kiddo, Maxon's CFO, noted at the start of the call that automotive was a significant driver in the firm's Q3 overall revenue growth. The company supplies a wide variety of automotive qualified ICs with a focus on power management, RF products, keyless access and high speed serial links. Growth has been exponential in the segment due to activity around conceptualizing the car of the future as well as strong auto sales over the last few years. The company makes technology for serial link products serving infotainment and driver assistance applications. Talk of "peak auto" and U.S sales plateauing may becoming a reality. Additionally, the much relied upon China sales appear to have hit a wall, as the country's rollback of a tax discount for small-engine cars slowed demand. Growth in China auto sales fell of a cliff in March growing just 1.7% a visible slowdown from the 6.3% growth in the first two month of the year. Since its last earnings report in late January, shares were up over 8% going into the Q3 earnings report.

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Disclosure: None.

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