After a raft of mixed earnings reports by semiconductor companies and some gigantic stock declines, it's fair to ask: How bad is it? And given the chip industry's status as one of the anchors of business investment in the economy, is the string of weak news a sign the country as a whole is headed for slower growth?
That question has loomed large in the stock market's gyrations this week. A market leader AMD stock dropped 21 percent on Wednesday night before a partial recovery Thursday, and Texas Instruments fell 8.8 percent after it reported that revenue was little changed in the third quarter as growth in its crucial auto segment slipped. The Philadelphia Semiconductor Index of 30 top chip companies is down 17 percent since Labor Day,including the biggest one-day drop in a decade on Wednesday.
The picture isn't unambiguous: An earnings beat from Intel late Thursday is helping to offset bad news from AMD and TI, and rival chipmaker Xilinx also beat expectations as growth in chips for 5G wireless and cloud-computing data centers offset a drop in demand for chips used in industrial and aerospace/military applications.
But slowing overall growth in chip sales and profits, albeit after a stellar 2017, has economists and market observers questioning whether technology investment is cresting — which, if true, would mean that the 2017 corporate tax cut is falling short of one of its most important goals.
"IT equipment and software investment is 28 percent of total nonresidential fixed investment," Moody's Analytics chief economist Mark Zandi said. "Real investment spending is on track to grow 8 percent annualized in the third quarter. This is similar to the growth in 2017. So no, I don't think the tax cuts have had any meaningful impact on IT investment."
Another concern is the fallout effect on the sector amid the U.S.-China trade war and concerns around China's economic growth. The White House implemented 10 percent taxes on $200 billion worth of Chinese imports in September. Those tariffs are set to rise to 25 percent by Jan.1 and could affect products manufactured with semiconductors.