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3 Semiconductor Companies Vulnerable to China’s Economic Downturn

China’s economic struggles are expected to have a negative impact on semiconductor companies such as Monolithic Power Systems, Qualcomm, and Texas Instruments. Despite the anticipation of an economic boom in China after Covid-19 restrictions were lifted, the country has not seen the desired growth. The iShares MSCI China ETF, which tracks Chinese equities available to international investors, is down 7.93% year-to-date, while the S&P 500 is up 15.04% despite a downturn in August.

Barclays analysts recently reduced their growth forecast for China due to worsening conditions in the housing market. China’s industrial production and retail sales also fell below expectations in July. A slowdown in China would have a significant impact on many tech companies, as a large portion of their revenue depends on the region.

Monolithic Power Systems (MPS) is not as well-known as other chip makers but has a market cap of over $23 billion and is included in the S&P 500. MPS’s products are used in various markets, including storage and computing, automotive, industrial, communications, and consumer markets. The company has benefited from the growth in AI spending, but cuts in spending on traditional computing applications have partially offset this growth. Around 86% of MPS’s revenue in 2022 came from customers in Asia, with a majority of that from China.

Qualcomm, a San Diego-based wireless communications specialist, is also focused on the risks associated with China, primarily due to geopolitical reasons. The company’s business is significantly concentrated in China, creating additional risks due to ongoing US/China trade tensions and national security concerns. Qualcomm expects a slower recovery in China, leading to a decline in calendar ’23 handset units. The company’s stock has declined by 16.70% in August.

Texas Instruments, based in Dallas, serves markets such as automotive, industrial, consumer electronics, and communications. The company’s sales and earnings have declined in the past three quarters, as its customers have faced sluggish conditions. Around 25% of Texas Instruments’ revenue comes from end customers headquartered in China. The company acknowledges the risk of geopolitical tensions to its business in China, but the post-Covid economic recovery is also impacting demand.

Despite the challenges, Texas Instruments has a history of beating top- and bottom-line views. Analysts expect a 21% decline in earnings for the full year, but a consensus view of “hold” suggests a 7% earnings rebound is expected next year. The company’s stock has an upside potential of 11.31% according to analysts’ price target.

Overall, these three semiconductor companies are vulnerable to China’s economic downturn, as their revenue is significantly dependent on the region. The slowdown in China and various risks associated with the country are affecting their sales and earnings.

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