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- Chip giants have been reeling from bad news all quarter, led by the Trump ban on Huawei.
- The sector is also feeling a market slump in one of their most important segments, data center equipment.
- News that Trump plans to ease the Huawei ban lifted semiconductor stocks Monday.
- But analysts are eager to hear what chipmakers say about their overall market in the coming weeks as they report earnings.
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Chipmakers are wrapping up a bumpy second quarter, pummeled by a host of bad news, including a slumping data center market and the Trump ban on Huawei.
With chip giants like Intel and AMD set to report results in the coming weeks, we talked to tech experts on what the major semiconductor companies can say that would signal a rebound for the industry.
Major chipmakers like Intel and Nvidia posted disappointing results in their last quarters and analysts have mixed thoughts on if they’ve hit rock bottom and will rebound, or not.
The Philadelphia Semiconductor Index, the key barometer for chip-investing sentiment, is off about 6% from a year-to-date high of 1,589 in April.
On the other hand, the sector got a lift Monday on reports that the Trump Administration’s plan to relax a ban on US companies that sell to Huawei. The Philadelphia Semiconductor Index was up more than 2% in Monday trades, outpacing the Nasdaq and the Dow.
This next round of quarterly reports could offer insight into what’s in store for the broader tech market, too, since semiconductor companies build products ahead of any upswing in demand for end-customer goods.
Bernstein Research analyst Stacy Rasgon dubbed the plan to ease the ban "Thaw-wei," even though he stressed the news did not exactly point to a resolution of the US-China trade dispute.
"Monitoring Twitter as a research tool makes us somewhat morose," he said in a note, which also pointed out that President Trump’s tweet said the ban would be eased only on products that "will not impact our national security."
The bigger issue for chipmakers, he said, is the broader market uncertainty. "Is that general uncertainty easing or not?" he told Business Insider.
General market uncertainty
The chip industry got some upbeat news last week when memory chip giant Micron reported fiscal third-quarter results that beat expectations.
Did that point to a chip rebound in the second half of 2019?
"Not really," Joel Kulina, head of technology trading at Wedbush, told Business Insider. Micron said it expects capital expenditures to be "meaningfully lower" in 2020, which suggests a more cautious view of future demand. Kulina said Micron "isn’t exactly bullish in terms of how they view the shape of the recovery."
What major chipmakers say about the last quarter and the guidance they give will be more critical, experts say. Some are bracing for more bad news.
In a note to clients, Raymond Jaymes analyst Chris Caso said he expects "most semi companies will lower expectations during the July earnings season."
Others, like IDC President Crawford Del Prete, believe that "overall demand for components is still there."
"While demand is not rocketing, it’s settling out to be better than expectations in this case," he told Business Insider.
Data center market slump
Del Prete is still expecting soft demand in one critical area: data centers. In fact, what chip giants, particularly Intel and Nvidia, say about demand for chips that power computer servers and other equipment in data centers will be in the spotlight after the two companies both pointed to weak demand last quarter.
The outlook looked so downbeat for Nvidia when it reported its last earnings in May, that the company decided not to offer a full-year guidance. Nvidia’s current fiscal quarter ends this month.
"For data center chipmakers, I would like to see that demand in hyper-scale data centers is picking up again after these customers paused purchasing as they consumed the technology," analyst Patrick Moorhead of Moor Insights and Strategy told Business Insider.
In other words, he’s hoping chip companies report that they’ve got cloud computing customers that are steadily buying because cloud companies are growing like crazy.
AMD also has a considerable data center business that could be impacted by slowing demand. But it’s been doing well winning market share in other areas, analysts believe.
It’s received more upbeat reviews from analysts based on its news like a new, major supercomputing deal with Cray and the Department of Energy.
In a June 26 note to clients, Wedbush analyst Matthew Bryson also said the company is poised "to take meaningful share from" Intel in the PC and server markets in the coming years. Bryson also believes AMD could grab share from Nvidia in Nvidia’s bread-and-butter graphics chip market.
Expectations remain high for AMD even though the company recently took a hit from a Wall Street Journal report that said an AMD joint venture gave China access to "state-of-the-art" processors, a charge the chipmaker denied. But while the "headline was scathing, Bryson said he doesn’t expect any "meaningful negative implications" for AMD’s financial results this quarter.
The 800-pound gorilla
Still, the US-China trade tensions remain the biggest headache for the chip industry, Marty Wolfe, president of Martinwolf M&A Advisors.
"The 800-pound gorilla is some resolution to the China tariff turmoil," he told Business Insider. It’s unclear how the dispute will play out despite the news that Trump is easing the ban on Huawei. "If there is clarity and a pathway to some certainty the chip makers can be valued based upon market factors."
Kulina of Wedbush said he "would love for the trade situation to be in the rearview mirror. Until then, I believe it’s going to be choppy trading" for chipmakers.
Got a tip about Intel, AMD, Nvidia or another tech company? Contact this reporter via email at email@example.com, message him on Twitter @benpimentel. You can also contact Business Insider securely via SecureDrop.
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