The bellwether chipmaker Intel (NasdaqGS: INTC) is expected to reveal a rough quarter, potentially dragging down the semiconductor sector and related exchange traded funds, after falling PC sales and weaker overseas sales due to a strong USD weighed on the company.
The Market Vectors Semiconductor ETF (NYSEArca: SMH), which includes a 18.8% weight toward INTC, and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), which holds a 7.7% position in INTC, were both down 1.0% Tuesday.
Intel, the world leader in semiconductor chips, is expected to announce first quarter results after the bell Tuesday. The company stock was trading 1.1% lower mid-day as many anticipate weakness in PC sales could pressure the semiconductors space.
For instance, last month, Intel warned that revenues would be almost $1 billion short of projections due to weaker-than-expected demand for business desktop PCs and lower-than-anticipated inventory levels among computer suppliers, USA Today reports.
Observers previously anticipated that sales would pick up after Microsoft (NasdaqGS: MSFT) ended technical support for its Windows XP operating system in 2014, which would have forced businesses to upgrade computers. However, the pick up in sales has not been as strong this year.
According to research firms Gartner Inc and International Data Corp., global PC shipments declined over the first quarter, suggesting further weakness in the global computer business, reports Robert McMillan for MarketWatch.
Moreover, since Intel sells chips to foreign markets in U.S. dollar terms, the company may have experienced pricing pressures weighing on sales with the greenback strengthening this year.
Consequently, investors who want to hedge against a potential dip in the semiconductor space over the short-term may utilize the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS), which takes the -300% performance of semiconductors.
However, looking ahead, a jump in PC sales is expected later this year when Microsoft unveils its Windows 10 platform, which could act as the fillip needed for PC users to upgrade their systems.
Additionally, Intel is pushing into other avenues of growth such as data center and network equipment, with the market for PCs, tablets and smartphones maturing.
“Our Buy recommendation reflects our view of attractive valuation, belief that fundamentals will improve in the second half of 2015 and plans to return cash to shareholders,” S&P Capital IQ Equity Analyst Angelo Zino said in a research note. “We see an aging PC landscape, market share gains and new innovative devices supporting PC sales, while higher cloud investments drive Data Center growth in the coming years.”
Market Vectors Semiconductor ETF
For more information on the semiconductor sector, visit our semiconductors category.
Max Chen contributed to this article.