Broadcom Chipped Away

Broadcom's warning

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What's going on?

Shares of American chipmaker Broadcom fell 6% on Friday after the company cut its annual sales forecast – leading investors to chip away at the stocks of European peers too.

What does this mean?

Broadcom now expects its revenue to be $22.5 billion this year – a decent chunk of change but, crucially, $2 billion lower than what it was forecasting in March. The company blamed the ongoing US-China trade war (now featuring India) for its lowered outlook: Broadcom’s customers aren’t confident in future demand from their customers, thanks to cloudy economic skies, so they’re ordering less. And the US’s recent blacklisting of Huawei has further broadened the issue: sales to the Chinese tech firm were 4% of Broadcom’s total revenue last year.

The storm is brewing on both sides of the trenches: growth of Chinese industrial output (of things like cars and computers) slowed to its lowest level ever in May, according to data released on Friday.

Why should I care?

The bigger picture: What goes around comes around.

European chipmakers’ stocks were also in investors’ crosshairs on Friday – they sold off shares of companies including AMS, Infineon, and ASML. Earlier this year, global chipmakers’ stocks were buoyed by Samsung and French-Italian chipmaker STMicroeletronics saying that the second half of the year would be brighter for component companies thanks to new smartphone releases. But Broadcom’s warning may have put an end to that hope. The chip industry’s globally connected – it takes over 200 suppliers from 43 countries to make an iPhone – so if one chipmaker is cut, it’s likely several will bleed.

Zooming out: China no-mates.

Investors avoided Hong Kong-listed stocks late last week, sending their values down. The government’s plans to allow extradition of local criminals to mainland China incited violent protests. While they’re now on hold, concerns remain that Hong Kong’s current favorable trading relationship with the US may be at risk if the plans are eventually pushed through, potentially offsetting any benefit from tech giant Alibaba’s forthcoming local listing.

Originally posted as part of the Finimize daily email.

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