The outlook is turning grim for chip makers that cater to the auto industry. On Thursday, shares of Mobileye Global, a leading supplier of autonomous-driving systems and related equipment, plummeted by over 25%. The company announced that it expects a 50% decline in first-quarter revenue compared to the previous year, which came as a surprise to Wall Street, who had anticipated an increase. The main reason cited for this decline was a notable buildup of inventories of Mobileye's EyeQ computer chips at some customer locations.
Mobileye's discouraging forecast aligns with the recent downbeat news from ON Semiconductor and Lattice Semiconductor. These two companies also provided soft outlooks in late October, attributing their difficulties to weakening demand in the auto and industrial markets.
Concerns among Wall Street analysts regarding semiconductor companies with exposure to the auto industry have been growing steadily. For instance, earlier on Thursday, before Mobileye's announcement, Bernstein analyst Stacy Rasgon downgraded his rating for Analog Devices stock from Outperform to Market-Perform. Despite this downgrade, Rasgon maintained his target price of $200 for the shares, suggesting a modest gain from Wednesday's closing price of $188.96.
According to Rasgon, "The industrial and automotive semiconductor markets are unfortunately closer to the beginning of their corrections than the end." This statement hints at the challenges lying ahead for chip makers operating in these sectors.
Auto and Industrial Concerns Weigh on Microchip Technology Shares
In a recent development, Piper analyst Harsh Kumar has downgraded his rating on Microchip Technology shares to Neutral from Overweight. However, he has maintained his price target of $80 for the stock. The primary concern that Kumar pointed out is the company's exposure to the auto and industrial sectors. He believes that the end markets may face further challenges before witnessing a rebound in revenues and EPS.
In a contrasting move, Kumar has raised his rating for Micron Technology stock to Overweight from Neutral. He predicts a potential increase in memory-chip prices this year due to production cuts. Consequently, he has also upgraded his share-price target to $95 from $70.
As of today's early trading, Analog Devices shares have dropped by 1.4% to $186.25, while Microchip stock has experienced a 1.1% decline, closing at $83.66. On the other hand, Micron Technology shares have shown a positive trend with a 1.3% increase, reaching $83.29.
These developments come in the wake of similar reports last year when ON and Lattice reported weakness in the auto sector. The consensus seems to suggest that investors should not expect an immediate turnaround in the industry.