As chip stocks keep making new highs, headlines about near-term demand trends remain mostly positive.
The sales pre-announcement just shared by Microchip Technology (MCHP) , a company whose microcontrollers (MCUs) and analog/mixed-signal chips are used by legions of hardware makers across a number of end-markets, is a good case in point. Microchip issued revised December quarter sales guidance that implies a 4% sequential sales drop at the midpoint, and said it's "preparing our factories and subcontractors to be able to deliver better than mid-single digit percentage sequential revenue growth in the March 2020 quarter."
Before the pre-announcement, the consensus was for Microchip's sales to be down 5% sequentially in the December quarter (in line with the midpoint of its prior guidance), and for sales to grow only 2% sequentially in the March quarter.
Likewise, Microchip's commentary about near-term demand trends represented a big change of pace from what it was sharing for much of 2019, as it dealt with soft Chinese demand and broader inventory corrections amid ongoing trade tensions. Among other things, the company says its order backlog is "significantly higher" than what it was three months ago, and that it's "seeing strength coming from all major geographies including the U.S., Europe and Asia, as well as several major end markets including data center, industrial and automotive."
Microchip's pre-announcement has led its shares to rise almost 6% on Tuesday, making fresh all-time highs. It has also boosted the shares of peers such as Texas Instruments (TXN) , Analog Devices (ADI) , ON Semiconductor (ON) and NXP Semiconductors (NXPI) , and has helped the Philadelphia Semiconductor Index (SOXX) rise about 2% on a quiet day for the Nasdaq.
Growing optimism about memory demand and pricing trends are also helping chip stocks rally. Micron (MU) and Western Digital (WDC) are each up over 5%, and several chip equipment makers -- a group that has seen strong demand lately from Taiwan Semiconductor (TSM) and Intel (INTC) , but soft demand from memory makers -- are also rallying. Here are a few things seem to be at play:
- Cowen upgraded Micron and Western Digital to Outperform this morning. The firm predicted the DRAM industry will begin recovering sooner than expected amid improved server demand and 5G phone launches, and that Western will benefit from improved NAND flash memory pricing and enterprise SSD share gains.
- Micron exec Sumit Sadana shared upbeat comments about DRAM and NAND supply/demand trends at a JPMorgan conference taking place at CES. To an extent, Sadana's comments echoed remarks made recently by CEO Sanjay Mehrotra during an interview with RealMoney.
- A fire broke out at a Japanese fab owned by NAND giant and Western Digital partner Kioxia (formerly Toshiba Memory). Together with a recent power outage at a Samsung DRAM and NAND fab, the fire could provide a fresh lift to NAND prices, which have already been bouncing in recent months.
Upbeat news was also shared today by a pair of Asian chip suppliers. Himax Technologies (HIMX) , a Taiwanese firm whose products include display drivers, touch controllers and image sensors, is up 16% after announcing its Q4 sales rose 6.5% sequentially (they were previously guided to be roughly flat). And Silicon Motion (SIMO) , a Korean supplier of NAND/SSD controller chips, said it expects Q4 sales to be above the high end of its original guidance range.Chip stocks have undoubtedly priced in a lot of good news over the last six months, and that's a good argument for, at a minimum, being selective with the group, if not waiting for a market correction to buy. But admittedly, industry news flow isn't giving investors many reasons to sell right now.