Semiconductor sector exchange traded funds were among the worst performers on Friday, with Broadcom (NasdaqGS: AVGO) dragging on the segment after the chipmaker painted a dismal outlook that suggested more troubles ahead for an already ailing industry.
The iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) declined 2.6% on Friday.
Broadcom stated that orders have been contracting, signaling that the industry has taken a blow from both the government ban on shipments to Huawei Technologies and the general macroeconomic uncertainty, MarketWatch reports.
Broadcom shares declined 6.3% on Friday, testing its long-term resistance at its 200-day simple moving average. AVGO makes up 7.8% of SOXX’s underlying portfolio.
”We expect Broadcom’s report to be a preview of what we’re likely to hear from other semi suppliers during July earnings,” Raymond James analyst Chris Caso said in in a note.
Susquehanna Financial Group analyst Chris Rolland calculated that Huawei makes up about $400 million of the $2 billion shortfall that Broadcom Chief Executive Hock Tan told investors to expect during the company’s earnings call, along with mentioning inventory cuts by some of its customers.
“We view this commentary as particularly worrisome as we had thought most [original equipment manufacturers]were already well into the process of inventory reductions at this point in the semi downcycle,” Rolland said in a note. “This perhaps suggests that either another shoe may drop for semis given the latest bout of macro/tariff/Huawei announcements or this may just be a Broadcom-specific customer inventory issue.”
Broadcom has now come out with a revised full-year guidance, which paints a much more negative picture that contradicts many previous claims of a hopeful recovery in the second half of the year.
“Until there’s a resolution or some type of clarity on the trade deal with China, you’re going to see the chipmakers show weakness,” Ryan Nauman, market strategist at Informa Financial Intelligence, told Reuters.
“People are backing off of optimism that a trade deal will get done and it’ll probably drag out longer into the year,” he added.
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