Semiconductor manufacturer Analog Devices posted record quarterly sales on Tuesday. The stock fell anyway. Management’s comments on the auto deal nailed it. Sales in this end market are expected to decline in the current quarter.
This revelation drove shares of a variety of other auto-related stocks around the world lower.
“We delivered another very strong quarter with record revenue of $3.26 billion that exceeded and represented mid-point guidance.” [Analog’s] “The 13th consecutive quarter of sequential growth,” CFO Prashanth Mahendra-Rajah said on the company’s earnings call. “Year over year, we grew 10%, again led by all-time highs in the industrial and automotive sectors.” Auto sales accounted for 24% of analog sales.
However, it didn’t matter. Shares in Analog (ticker: ADI) fell 7.8% on Wednesday to close at $173.20, while the S&P 500 and Nasdaq Composite fell 0.7% and 0.6%, respectively.
The leadership did it. Revenue for the current quarter is expected to be approximately $3.1 billion. Wall Street was looking for something more. And sales in the industrial and automotive end-markets are likely to decline about 3% to 6% sequentially, resulting in a savings of about $100 million in overall sales.
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“China is definitely among the new information that has been developing recently,” Mahendra-Rajah added. “We’ve seen three-quarters of the decline in China, and we’re expecting a fourth.”
Auto-related weakness in China isn’t what investors want to hear. The statement may have been one of the reasons why Tesla (TSLA) plunged 1.5% and NIO (NIO) stock fell 9.6%. Weak quarterly sales by Chinese electric vehicle maker XPeng (XPEV), reported on Wednesday, didn’t help either. XPeng shares fell 5.1%.
For the analog quarter “Automotive [business] has been impacted by a slower rise in Chinese electric vehicles,” Susquehanna analyst Christopher Rolland wrote in a report Wednesday. “We take these comments as a sign of the long-awaited downturn in the auto/industrial sector… the correction has started here.” He still rates the stock as a Buy. Its price target dropped to $215 from $225 per share.
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New cars require more and more chips. And electric vehicles require more chips than conventional cars. Both trends have given chipmakers a tailwind. A looming “correction” could pull some additional air out of semiconductor stocks in the coming weeks.
The news isn’t bad for all chip players equally. “Bad for them [chip makers] Those exposed to cars don’t care about those exposed to AI,” said Pierre Ferragu, an analyst at New Street Research. “Not usually the same players.”
Nvidia (NVDA) has both AI exposure and auto-exposure, but auto-exposure, although increasing, is relatively low. “Nvidia’s data center GPU products continue to enjoy strong demand from both AI-focused and broader data center demand,” Stifel analyst Ruben Roy wrote in a research paper Monday.
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Nvidia’s revenue from data centers and so-called “professional visualization” totaled $16.5 billion in 2022, accounting for about 61% of total revenue. These categories grew about 30% year over year. Automotive sales in 2022 were $903 million, or about 3% of total sales. A small fraction, but auto sales are up about 60% year over year.
On Wednesday, investors acted as if they understood that. Nvidia shares fell 0.5% on Wednesday. Stocks of chipmakers with larger auto franchises have turned it on its head.
ON Semiconductor (ON), NXP Semiconductors (NXPI), Infineon Technologies (IFX.Germay) and STMicroelectronics (STM) shares fell 3.3%, 4.9%, 4.9% and 4.9% respectively. Car-related sales account for about 43% of 2022 sales for the quartet.
Investors in traditional auto stocks also didn’t like what Analog had to say. Parts giant Magna International (MGA) fell 3%. General Motors (GM) and Ford Motor
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(F) shares fell 3.4% and 3.3%, respectively.
Few companies heavily involved in the auto business escaped unscathed on Wednesday.
Write to Al Root at [email protected]