Widespread Pushouts/Cancellations Indicate Analog Party is Over

By Senad Karaahmetovic

Citi analysts cut estimates on semi stocks after the latest round of checks indicated delays and cancellations, which Analog Devices (NASDAQ:) warned about in July, are now hitting the rest of the analog sector.

The downside is primarily led by weakening demand in Europe, as well as excess inventory. As a result, the analysts see both NXP Semiconductors (NASDAQ:) and Texas Instruments (NASDAQ:) reporting weakness in bookings.

“We reiterate our belief that this is just the beginning of the downturn and every company/every end market will feel it. We expect Microchip to feel it last given it has the longest lead times. We continue to favor ADI as our top pick given its defensive nature,” they said in a client note.

NXPI, TXN, and Microchip (NASDAQ:) all have their earnings estimates cut at Citi to reflect declining lead times.

The analysts also reiterated their bearish stance on the wider semi sector and believe that (The PHLX Semiconductor Sector), used as a key gauge for the chip sector, will hit new lows again as “the downturn gains steam and estimates get cut.”

They expect chip stocks to bottom in the first half of 2023, which should happen after “every company has aggressively cut estimates, capitulation has resulted in stocks trading close to trough valuations on the new estimates, and capex cuts have gone through memory, logic, and foundry.”

Citi’s 2023 EPS is now 20% below Consensus after the latest estimate cuts. Among other things, the analysts believe that Micron (NASDAQ:) continues to serve as a leading indicator for the sector downturn.