Chip shares slammed by new ban on chip and AI expertise for China

The chip sector melted down Friday after U.S. regulators moved to pump the brakes on China’s military ambitions by issuing new restrictions on semiconductor and AI technology that can be sold to the country.

On Friday, the U.S. Department of Commerce expanded its list of chip technology that requires a license to be sold to China — essentially a euphemism for a ban if the license can be denied — and the PHLX Semiconductor Index
which had been down around 3% before the news broke, declined 6% about two hours later.

That was served fresh on the back of Advanced Micro Devices Inc.

issuing a $1 billion shortfall warning on expected sales to PC customers. Coming after Micron Technology Inc. ‘s

forecast of revenue about $1 billion below Street expectations last week, the news prompted analysts to question whether 2022’s sudden chip glut is worse than the one in 2019. AMD shares dropped more than 12%, and Micron shares were down 2%.

Read: ‘This is worse than 2019’: Micron faces ‘unprecedented’ supply issues and analysts are split on if it has hit bottom

Friday’s drop is only the worst one-day drop on the SOX index since Sept. 13, when it dropped nearly 6.2%. In fact, Friday is merely the third worst one-day performance of the year for the SOX index with June 16’s just over 6.2% fall.

The Commerce Department’s new list adds to one from September that focused on AI tech from Nvidia Corp.
Shares of Nvidia were down 7% Friday.

Nvidia shares melted down last month when it disclosed the list of products it needed a license to sell to China, primarily the company’s A100 and H100 data-center AI technology, and estimated a potential $400 million hit in expected third-quarter revenue if licenses were denied, adding to Nvidia’s bleed-out this year after cutting its outlook not just once

, or twice, but three times. 

Read: Nvidia’s ‘China Syndrome’: Is the stock melting down?

Bans of chip technology to China are nothing new: A little more than two years ago, a ban focused on the machines needed to make silicon wafers into finished chips, equipment made by companies like Lam Research Corp. 

and KLA Corp.
and in 2018 it was all about Micron and memory chips. Lam shares fell 6% Friday, while KLA’s declined 5%.

Elsewhere in the sector, shares of Intel Corp.

fell 5% Friday, while shares of Qualcomm Inc.

declined 3% and Broadcom Inc.

shares fell 4%. Shares of Texas Instruments Inc. 
 which happens to be the largest U.S. supplier of auto chips, fell 4%.

Read: AMD shows the end of the PC boom may be hurting chip makers more than expected

As for the third-party fabs that produce the silicon wafers that become microchips, shares of Taiwan Semiconductor Manufacturing Co. 

shares declined 5%, and GlobalFoundries Inc.

shares fell 6%. Shares of Marvell Technology Inc.
which in August disappointed with its data-center forecast, dropped 11%.

The SOX index has fallen 40% on the year, with shares of AMD and Nvidia leading the plummet with nearly 60% drops in 2022, while the S&P 500 index

has shed 24%, and the tech-heavy Nasdaq Composite Index 

has dropped 32%.

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