Shares of SanDisk (NasdaqGS: SNDK) are off 17% today and earlier touched a new 52-week low after the maker of flash memory products pared its first-quarter revenue estimate to $1.3 billion from $1.4 billion to $1.45 billion while withdrawing guidance for upcoming quarters.
The SanDisk shock is being felt throughout the semiconductor space and comes on the heels of ominous guidance from major semiconductor firms such as Dow component Intel (NasdaqGS: INTC) and Taiwan Semiconductor (NYSE: TSM).
The Market Vectors Semiconductor ETF (NYSEArca: SMH), home to nearly $396 million in assets under management, is trading slightly lower today, extending losses that have seen the ETF shed 5.6% over the past week. Intel and Taiwan Semiconductor combine for nearly 33% of SMH’s weight, which is not a positive trait at a time when some analysts are lowering price targets and EPS estimates on the Apple (NasdaqGS: AAPL) supplier. [Global Tech ETFs at Risk]
SanDisk is also a major Apple supplier, relying on the iPad maker for almost 20% of sales.
The $546.1 million iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) is also trading lower Thursday, extending its one week loss to 6.7%. SOXX features SanDisk as its eighth-largest holding at a weight of 4.1%. The ETF is also home to several SanDisk “sympathy” plays, including Micron Technolgy (NasdaqGS: MU) and former high-flier Skyworks Solutions (NasdaqGS: SWKS), which is lower by more than 4% today.
SOXX also devotes over 11% of its combined weight to Intel and Taiwan Semiconductor, underscoring the ETF’s vulnerability at a time of weakness for the major chip manufacturers. [Chip ETFs Endure Intel Weakness]
Adding to the concern surrounding chip stocks and the relevant ETFs is the notion that veracity of the semiconductor trade is now being threatened, which could prompt professional traders to take profits on what, to this point, has been a lengthy, rewarding trade from the long side.
“We highlight the Semiconductor industry because it has been one of the ‘monthly’ Sharpe Ratio trades since Q4 2012. Put another way, this has been a consensus professional long for quite some time and outside of a few intra-month instances, such as last October’s larger market retracement, it has been very easy to hold. In fact, we would go so far as to say that only biotechnology and the Internet (i.e. AAPL, GOOG, FB, etc.) are held in higher regard within US equities. So when we see benchmark indices in semiconductors (SOX Index) and biotechnology (NBI Index, XBI ETF -5.5% yesterday) ‘roll-over’ like this we start to worry a lot more about a larger market retracement than we normally do,” said Rareview Macro Founder Neil Azous in a note out Thursday.
Azous adds that any rush to buy the dip semiconductor stocks and ETFs will be limited due to weakness in marquee names, such as Intel and Taiwan Semiconductor.
There is something to that thesis. For the week ended March 25, investors pulled a combined $45 million from SMH and SOXX.
Market Vectors Semiconductor ETF