NEW YORK (TheStreet) -- Shares of a number of semiconductor makers are falling sharply after one of the companies in the space, Microchip Technology (MCHP) - Get Report , warned that it believes the sector had entered a correction. In a note to investors today, research firm FBR Capital said Microchip's comments "could be worrisome, " and the firm responded by taking a more defensive stance on the space.
WHAT'S NEW: Microchip, which develops microcontroller and analog semiconductors, estimated that its second quarter revenue would come in at $546.2M, versus its previous guidance of $560.0M-$575.9M and analysts' consensus estimate of $568M. The company said that it had experienced a number of negative trends during the quarter, including a weaker than usual September, weakness in China, and significant inventory builds at its distributor customers. Microchip President and CEO Steve Sanghi claimed his company often sees the turn of the semiconductor industry ahead of others, noting that it reports sales from distribution on a sell-through basis and built a significant amount of inventory in the distribution channel in the September quarter and that it does business with over 80,000 customers. Sanghi stated, "We believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future.”
ANALYST REACTION: In a note to investors today, FBR Capital analyst Christopher Rolland said that Microchip's statements come in the wake of other negative signs for the sector. In August and September, lead times for the sector fell versus the month before, the analyst stated. Additionally, revenue trends at Taiwanese chip makers weakened in August, Rolland stated. The analyst said that Microchip's statements pushed him over the fence, causing him to take a more defensive stance on the sector. He removed ON Semiconductor (ONNN) from FBR's Top Picks list but kept an Outperform rating on the stock, as he believes that its valuation is "very reasonable." Rolland maintained Market Perform ratings on Atmel (ATML) , Texas Instruments (TXN) - Get Report , Fairchild (FCS) , AMD (AMD) - Get Report , and Applied Micro Circuits (AMCC) . Sterne Agee also attributed weakness in the sector to Microchip's warnings, but the firm recommended buying NXP Semiconductors (NXPI) - Get Report , Avago (AVGO) - Get Report , and Skyworks (SWKS) - Get Report due to their strong product cycles with EMV and upcoming iPhone-iPad launches from Apple (AAPL) - Get Report . In addition, the firm said it would buy Micron (MU) - Get Report and SanDisk (SNDK) given tight supply, below normal inventory levels, and tailwinds from China.
PRICE ACTION: In early trading, Microchip dropped nearly 14% to $39.29, Intel (INTC) - Get Report fell almost 6% to $31.67, On Semiconductor slid 10% to $7.53, Atmel tumbled 11.5% to $6.61, Texas Instruments slipped 8% to $42.16, Fairchild slumped 10.6% to $12.95, AMD dropped 6% to $2.77, Applied Micro declined 10% to $6.19, and NXP Semiconductors was 14% lower to $55.27.
Reporting by Larry Ramer.
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