The Philadelphia Semiconductor Index (SOXX - Get Report) is down over 2% after an Evercore downgrade of Lam Research (LRCX - Get Report) that cited delayed chip equipment orders from memory makers put markets on edge once again about how quickly the chip industry will recover from its current downturn.
But it's worth keeping in mind that the downgrade is a negative for two parts of the chip industry -- equipment makers and to some extent memory makers -- rather than the industry at-large.
In his downgrade note, Evercore's C.J. Muse reports that steadily weakening DRAM and NAND flash memory prices are causing memory makers to delay both equipment orders related to capacity expansion and technology (manufacturing process) upgrades. As a result, Evercore now sees "a likely air pocket for memory equipment demand" into calendar Q4 and the first half of 2020.
Muse's comments contrast a bit with recent earnings call remarks from Lam, Applied Materials (AMAT - Get Report) and others suggesting that (following major 2019 declines) memory equipment spend will rebound in 2020 as inventory levels normalize and DRAM/NAND supply and demand gradually come into balance this year. Though equipment demand from major foundry and logic clients such as Taiwan Semiconductor (TSM - Get Report) and Intel (INTC - Get Report) has been reasonably healthy, nosediving orders from memory makers such as Samsung (SSNLF) and Micron (MU - Get Report) has led major equipment makers to forecast wafer fab equipment (WFE) spend will drop about 15% to 20% this year.
With Wall Street already assuming that chip equipment sales will fall by a healthy double-digit percentage this year, the last thing it wants to hear is that a strong 2020 recovery isn't a sure thing, or that (while they could see better demand later this year) memory makers remain nervous enough about near-term trends to delay technology upgrades.
However, a lot of the other news and analyst commentary surrounding chip stocks has been more positive lately -- particularly when it has involved non-memory chip suppliers. Jefferies made a bullish call on chip stocks on Monday, arguing that the industry's inventory correction "has largely played out." Around the same time, Goldman upgraded Analog Devices (ADI - Get Report) to Buy from Sell, expressing optimism that the correction is nearing its end and highlighting ADI's telecom equipment and automotive growth opportunities.
And with the qualifier that it's a relatively small firm, Korean analog and mixed-signal chipmaker MagnaChip Semiconductor (MX - Get Report) is up over 12% today after sharply hiking its Q2 revenue guidance. MagnaChip said its OLED display driver and the part of its foundry (contract manufacturing) business that involves 8-inch chip wafers are both expected to "substantially exceed" prior expectations.
There are certainly still some things for investors in non-memory chip suppliers to be worried about, from a cloud capital spending pause (likely to end by year's end) to soft smartphone and enterprise hardware demand to the Huawei parts ban and its potential ripple effects. But nonetheless, it would be a mistake to assume that bad news for chip equipment and memory makers is bad news for the industry at-large.
And certainly, the industry at-large has already priced in its share of bad news.