Global Semiconductor Sector Set To Grow, Though Casualties Likely To Continue

Global Semiconductor Sector Set To Grow, Though Casualties Likely To Continue

The outlook for the global semiconductor sector appears upbeat, despite gloomy earnings outlooks and potential slowdown in consolidation.

To date, trade tensions between the U.S. and China have infiltrated the semiconductor space, spurring fears about companies’ future financial prospects.

Uncertainties over China’s production capabilities and dependency on high-end chips have risen, for example, along with jitters about protracted feuds and tariffs between the world’s two dominant economies.

Tammy Kiely of the Goldman Sachs Investment Banking Division recently noted that as “trade tensions continue to intensify, semiconductors, one of the world’s most important and complex industries, have emerged as a key point of contention.”

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These frictions raise the stakes for an industry that has received heightened attention from a regulatory perspective, and Kiely said that given the size of the sector, as well as “its importance from a technology and military perspective, many countries are very focused on their semiconductor assets.”

Indeed, trade-related uncertainties appear to have increased risks related to the global supply chain, as well as international product sales, while generally posing a threat to the recent wave of consolidation in the industry.

South Korea’s Samsung Electronics (KRX:005930), for example, saw its stock shed around 3% intraday Tuesday after it unleashed a profit warning for the fourth quarter of 2018. The company released relatively rare expectations of a quarterly operating profit decline of roughly 29% year-on-year, as well as a sales decline of about 11% over the same period.

The news followed hot on the heels of U.S. tech giant Apple’s (Nasdaq: AAPL) downwardly revised earnings guidance earlier in January, including around 10% less revenue than initially expected. The alert, which was the firm’s first in almost twenty years, was largely a casualty of U.S.-China trade relations. 

Apple CEO Tim Cook noted that while the company anticipated “some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China.”

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Disclosure: The author does not hold any positions in the financial instruments referenced in the materials provided.

The analysis in this material is provided for information only and is not ...

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