Semiconductor ETFs in focus after Friday’s rout

Semiconductors have been the darlings of investors over the past few months and stocks skyrocketed on investors’ continued acclaim for the value-centric traditional stocks of semiconductors and encouraging industry fundamentals. The sentiment seems to have reversed following the heavy sell-off in the broad semiconductor space in Friday’s session.

The worst decline came after the diversified chipmaker Microchip Technology (MCHP) lowered its revenue outlook for the recently concluded quarter and warned of the health of the broad-based semiconductor industry. This suggests more pain for the company as well as others in the space as Q3 earnings unfold.

This is especially true, as U.S. semiconductor makers have seen soft sales from Asia to Europe in recent weeks. The major culprits are China, which is suffering from weak semiconductor demand, and Euro zone, which faces danger of falling into another recession and thus weighs on the demand for semiconductors.

Further, the earnings from the broad technology sector look disappointing as earnings are expected to grow only 2.8% in Q3, down from 12% reported in Q2, as per Zacks Earnings Trends. Revenue growth will also likely recede to 4.7% from 6.1% on negative net margins.

As a result, the Philadelphia Semiconductor Index fell as much as 7.7%, representing the worst one-day decline since 2009 with Microchip Technology plunging 12.3% at the close on the day. Other stocks also scored double-digit losses with Ambarella Inc. (AMBA) dropping 13%, NXP Semiconductors (NXPI) down 12.4%, Avago Technologies (AVGO) down 11.5% and Freescale Semiconductor (FSL) down 10.8%.

Industry primes such as Intel (INTC), Micron Technology (MU), Broadcom (BRCM) and Texas Instruments (TXN) dropped 5.1%, 9.3%, 5.5% and 7.1%, respectively.

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