Chip Stocks Slump but Remain a Big Winner in 2019

By Alexander Osipovich

Semiconductor stocks took a beating Friday, dragged down by disappointing results from Micron Technology Inc.

Analysts generally agree, though, that the sector is poised to benefit as demand for memory chips recovers and as the U.S. and China continue talks about a trade deal.

Micron shares fell 9.7% -- their biggest percentage decline this year -- a day after the company reported a steep drop in revenue and released a disappointing earnings forecast. That weighed on stocks like Lam Research Corp., which fell 4.4%, and KLA Corp., down 1.5%.

But the sector has still outperformed this year. Even with Friday's drop, Micron is up 38% since the start of 2019, while Lam Research has climbed 71% and KLA is up 78%. The iShares PHLX Semiconductor exchange-traded fund has gained 35%, handily beating the 18% rise in the S&P 500 over that period.

Semiconductors are a famously cyclical industry, driven by fluctuating demand for the chips used in everything from computers to iPhones and smartwatches. That cycle is at a low point: Global semiconductor sales fell 16% in July from a year ago, according to the Semiconductor Industry Association. But many analysts expect a rebound.

"We are optimistic around 2020," Wedbush said in a research note Friday, projecting that demand for memory chips would pick up next year with growing adoption of new 5G smartphones and the rollout of new gaming consoles.

The U.S.-China trade war caused volatile trading in recent months in chip maker stocks, which often have complex supply chains extending to China. High-level trade talks are set to resume next month, which has fueled some optimism that a resolution could be near.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

(END) Dow Jones Newswires

September 27, 2019 14:25 ET (18:25 GMT)

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