A likely slowdown in China’s economy is impacting forward-looking projections for a growing number of tech companies, including GPU inventor Nvidia. The American semiconductor manufacturer recently cut its fiscal Q4 sales forecast by almost 20 percent after concerns of a slowdown in the chip industry surfaced.
Nvidia’s November announcement was another negative omen on top of other gloomy news involving the semiconductor space. A series of bad press releases about the chip industry began last October and has continued to hurt industry participants. Overall, the VanEck Vectors Semiconductor ETF is down more than 12 percent in the last year, despite a 16 percent bump since Christmas.
The impact is being felt not only by the semiconductor manufacturers themselves, but also by the companies whose products depend on the technology. The latest earnings reports for a number of tech companies, including Intel and Apple, have been mixed. Intel’s revenue landed two percent short of Wall Street projections and Apple reduced expectations for the first time in more than 15 years in early January because of underwhelming iPhone sales in China.
Semiconductor Space Insulated from Problems in China
However, some industry experts are hesitant to use Nvidia’s performance as a proxy for the semiconductor industry as a whole. T.J. Rodgers, a co-founder of Cypress Semiconductor, believes the market is still in good shape. “I wouldn’t worry too much about Nvidia. They make very specialized chips [for things like] bitcoin mining.”
Instead, Rodgers is studying the success of Micron, a tech company focused on the production of computers and semiconductors, as a better indicator of what is happening in the space. 51 percent of Micron’s revenue is impacted by China’s economy. “If they’re slowing down, you could scale the number of electronic products China’s gonna make pretty much by watching what they do.”
Rodgers, who stepped down from Cypress in 2016 after 30 years of service, believes consolidation in the semiconductor space is leading to larger, more profitable companies that can withstand potential economic slowdowns. “The revenue is a little bit weak, but the earnings are fine.”