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Broadcom's dim outlook sparks chip stock selloff, analyst expects things to get worse

Julie Hyman
·Host

Shares of Broadcom tumbled on Friday after the chipmaking giant cut its full-year revenue forecast, triggering a selloff in other semiconductor stocks. While analysts at Barclays said this represents a bottom, another analyst said the worst is yet to come.

“The 2019 story is over for chip stocks. We think anybody expecting a second-half recovery (servers, smartphones, 5G-related), let’s put that to bed,” said Anand Srinivasan, senior technology analyst at Bloomberg Intelligence, in an interview on Yahoo Finance’s On the Move. “We are going to have weak growth year-over-year.”

Broadcom President and CEO Hock Tan blamed U.S.-China relations and the Huawei sanctions for the gloomy outlook.

"We currently see a broad-based slowdown in the demand environment, which we believe is driven by continued geopolitical uncertainties, as well as the effects of export restrictions on one of our largest customers,” Tan said in a statement.

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Srinivasan pointed to macroeconomic weakness in China that predated the imposition of tariffs, and has only worsened. The country reported early Friday that industrial output growth had slowed to the weakest since 2002.

That’s before China has fully retaliated against the U.S., which could have further negative economic consequences for chipmakers. Chinese officials have threatened a blacklist of American companies, but no such list has been publicly released.

“What has China done so far, actionable? Nothing, yet,” Srinivasan said. “We’ve always viewed this trade drama as multiple stages. So if they have a counter, retaliatory measure, this could get worse.”

Chipmakers are viewed as economic and market bellwethers, since they go into such a wide variety of consumer and business products, from cars to servers.

Broadcom led a selloff in semiconductor stocks including Advanced Micro Devices (AMD), Nvidia (NVDA), Qualcomm (QCOM) and Intel (INTC) on Friday. Meanwhile, the VanEck Vectors Semiconductor ETF (SMH) is still up 18% this year.

Julie Hyman is the co-anchor of On the Move on Yahoo Finance.

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