Competition Fears Prompt Downgrade of Specialty Semiconductor Stocks

by Warren Seah

In a recent report, Citi analysts have downgraded Skyworks Solutions (SWKS) and Qorvo (QRVO) from Neutral to Sell, citing increasing competition and concerns over China’s domestic chip-making industry. The analysts have also lowered the price targets for both stocks.

Downgrade Details

Citi analysts have downgraded Skyworks Solutions and Qorvo to Sell from Neutral, adjusting their price targets to $87 and $78, respectively. This represents a significant decrease from the previous targets of $116 for both stocks.

As a result of the downgrade, Skyworks stock has experienced a 3.3% decline to $94.95, while Qorvo shares have dropped by 4% to $91.15. Qorvo is currently the worst performer in the S&P 500 during premarket trading.

Increased China Substitution Risk

The main reason behind the downgrades is the “increased China substitution risk” that has arisen after the launch of the Huawei Mate 60 phone. According to Citi, this new phone is believed to use domestic radio frequency and connectivity chips, posing a potential threat to Skyworks and Qorvo.

Industry research has revealed that the main chip inside the Huawei Mate 60 phone is manufactured on a 7-nanometer node, marking a significant milestone for China’s domestic chip-making industry. This development could impact the demand for foreign semiconductors used in mass-market consumer devices.

Market Challenges for Skyworks and Qorvo

Skyworks and Qorvo have already experienced declining sales in China due to weakening smartphone demand, and the rise in competition from Chinese domestic radio frequency component makers is expected to further affect their market share and sales recovery in 2024.

Positive Outlook for Nvidia and Marvell Technology

Despite the downgrades, Citi analysts maintain a positive outlook for Nvidia and Marvell Technology.

Nvidia is expected to see a significant boost with the launch of the Blackwell B100 GPU in the first half of 2024. This is anticipated to be a major catalyst for the company’s stock.

Marvell Technology retains its buy rating, primarily because of its 800 gigabits per second optical artificial-intelligence opportunity. However, industry estimates for Marvell’s enterprise-networking and carrier-infrastructure in 2024 may need slight adjustment.

In conclusion, while Skyworks Solutions and Qorvo face challenges due to increased competition and substitution risks in China, Nvidia and Marvell Technology remain promising investments in the semiconductor industry.

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