Covid-related factory shutdowns and weakening demand for 5G handsets in China are likely to pressure near-term sales for U.S. companies that make chips for Chinese smartphones, a Wall Street firm says. The news is another negative for semiconductor stocks.
In a note to clients Monday, Mizuho Securities analyst Vijay Rakesh highlighted multiple headwinds for Chinese handset makers and their component suppliers in the second quarter. The major Chinese smartphone makers include Xiaomi, Oppo and Vivo. Together those three firms accounted for 33.4% of global smartphone shipments in 2021, research firm IDC says.
The headwinds in China include weaker 5G handset demand and extended lockdowns related to the resurgent Covid pandemic that are impacting the supply chain, he said. Also, a more competitive Apple iPhone lineup is affecting sales of Android-based handsets in China, Rakesh said.
The situation could drive increased inventory of radio-frequency chips and other components, Rakesh said. That would hurt U.S. semiconductor stocks Qorvo, Qualcomm, Skyworks Solutions and Synaptics, he said.
Semiconductor Stocks Get Price-Target Cuts
Rakesh cut his price targets on those four semiconductor stocks. He kept his buy ratings on Qualcomm, Skyworks and Synaptics but reiterated a neutral rating on Qorvo.
Rakesh lowered his price target on Qualcomm stock to 185 from 210 and on Qorvo to 135 from 155. He slashed his target on Skyworks stock to 175 from 210 and on Synaptics to 250 from 290.
On the stock market today, semiconductor stocks rebounded off recent lows. Qualcomm climbed 1.8% to 139.32. Qorvo advanced 1.9% to 115.56. Skyworks increased 1.3% to 119.26. And Synaptics popped 4.5% to 159.70.
"Overall, we believe investor sentiment is very negative, especially with Shanghai, the biggest manufacturing hub in China for handsets, PCs and autos, in lockdown with logistics constraints," Rakesh said. The China factory shutdowns have lasted three or four weeks, he said.
Semiconductor stocks have tanked this year on concerns that the current uptrend in the chip cycle may be over soon. Slowing PC sales, Russia's invasion of Ukraine, and rising inflation have added to woes for the sector.
The Philadelphia semiconductor index, known as SOX, jumped 1.9% on Monday, but is down 21.8% year to date. The SOX contains the 30 largest semiconductor stocks traded in the U.S.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
