The semiconductor sector logged one of its worst weeks in an already lousy year following more evidence that the COVID-19 chip sector boom was drawing to a close.
On Friday, the PHLX Semiconductor Index SOX, -3.83% dropped as much as 5%, and finished the session down 3.8%, as chip stocks fell across the board. Shares of chip-equipment maker Lam Research Corp. LRCX, -7.35% led decliners falling 7.3%, with NXP Semiconductors NV NXPI, -1.31% the sector’s best performer with a 1.3% loss on the day.
That gave the SOX index its second worst week of the year with a 9.6% drop, the sector’s worst performing week since the week ending Jan. 21, when the index fell 11.9%, according to FactSet data. The chip index is already down 37.7% for 2022, compared with a 19.7% loss on the S&P 500 index SPX, +1.06% and a 28.9% drop on the tech-heavy Nasdaq Composite Index COMP, +0.90%.
Late Thursday, Micron Technology Inc. MU, -2.95% stoked Wall Street fears that customers may have loaded up on chips during the COVID-19-triggered shortage, and were now holding significant inventories, after the memory-chip maker forecast quarterly sales that were more than $1.5 billion below expectations. Analysts on Friday wondered if weakness in the PC and consumer markets could also extend to data-center sales. Micron shares finished down 3% Friday.
What the industry and Wall Street want to avoid is a situation like 2018, when chip prices soared, along with chip-maker stock prices, and customers double- and triple-bought chips to lock in prices before they could shoot any higher. As a result, sales eventually cratered and chip makers were stuck with huge inventories that took months to unload. Given that chip makers reported record sales in 2021, and their stocks reached record highs late in the year, investors are being extra cautious this time around.
Like Lam, suppliers to the chip-making industry were hit the hardest Friday with shares of KLA Corp. KLAC, -7.15% finishing down 7.2%, Applied Materials Inc. AMAT, -5.18% down 5.2%, and ASML Holding NV ASML, -5.47% off 5.5%. This past earnings season Applied Materials, ASML, Lam, and KLA all lamented that continuing supply-chain issues were hurting sales.
Next, were shares of third-party fab giant Taiwan Semiconductor Manufacturing Co. TSM, -5.81%, which closed down 5.8%.
Meanwhile, shares of Nvidia Corp. NVDA, -4.20% fell 4.2% Friday, while Advanced Micro Devices Inc. AMD, -3.66% declined 3.7%, Texas Instruments Inc. TXN, -3.33% declined 3.3%, Qualcomm Inc. QCOM, -3.30% fell 3.3%, GlobalFoundries Inc. GFS, -3.79% declined 3.8%, Intel Corp. INTC, -2.86% shares declined 2.9%, Marvell Technology Inc. MRVL, -2.25% shares fell 2.3%, and Broadcom Inc. AVGO, -1.64% shed 1.6%.
In comparison, the S&P 500 closed up 1.1% and the Nasdaq finished up 0.9% Friday.
Additionally, the sector was under pressure as Senate Republican leader Mitch McConnell threatened to derail a bill for $52 billion in funds earmarked to build up U.S. semiconductor manufacturing if Democrats revived their stalled climate and social policy package.
For the year, some of the worst performers on the SOX index include Marvell with a 51.4% drop, Nvidia down 50.6%, AMD down 48.8%, Applied Materials down 45.2%, Lam down 45.1%, ASML down 43.5%, and Micron down 42.4%.