Chipmaker Lattice Knocked Down As EV Sales Soften

Key Points

• Lattice Semiconductor fell 17.82% in the week ended November 3, due to weaker-than-expected forecasts.
• ON Semiconductor and Wolfspeed previously also issued a disappointing sales forecast, hinting at slowing EV sales.
• Analysts anticipate Lattice's earnings to decline by 15% to $1.49 per share for the full year, followed by a further 27% decline next year.

Mid-cap designer Lattice Semiconductor Corp. NASDAQ: LSCC is the latest chipmaker to tumble on weaker-than-expected forecasts, tied mainly to slower sales of electric vehicles. 

Lattice shares fell 17.82% the week ended November 3, after the company beat views for the third quarter but its guidance for the current quarter missed views.

ON Semiconductor Corp. NASDAQ: ON recently issued a disappointing sales forecast, suggesting that EV sales were slowing. Both ON Semi and Lattice are key suppliers to EV makers.

Signs of slowing EV sales are mounting: Shares of Tesla Inc. NASDAQ: TSLA are down 13.15% in the past month as the company has been slashing prices on its EVs. In addition, Ford Motor Co. NYSE: F recently said it was delaying $12 billion in EV spending as demand slows. 

Chinese EV maker Nio Inc. NYSE: NIO said it was cutting its workforce by 10% in a move to achieve greater efficiency.

More about supply than demand

Some analysts say Nio’s problems are more about supply than demand, as the company is attempting to control costs as competition heats up.

A glance at MarketBeat’s Nio chart shows a weekly gain of 10.62%. Other auto stocks, including Ford, also finished higher for the week as investors believe that the Federal Reserve may be stopping or slowing its series of rate hikes. That, of course, could drive car sales, many of which are financed.

 Lattice, whose end markets include computing, consumer electronics and industrial, in addition to automotive, earned 53 cents a share on revenue of $192.2 billion, up 10% and 11% respectively. 

However, the trajectory for the company’s earnings doesn’t look good. Net income and revenue have been decelerating for the past four quarters. For the full year, analysts expect earnings to decline by 15% to $1.49 a share. Next year that’s forecast to decline by another 27% to $1.09 a share. 

Falling below Wall Street views

For the current quarter, Lattice guided toward revenue in a range between $166 million and $186 million. The midpoint of $176 million fell below Wall Street’s forecast of $195.7 million. That’s not something that makes investors happy and the stock was punished.

In Lattice’s quarterly conference call, CEO James Anderson responded to an analyst’s question, addressing the path of the recent revenue decline in the company’s automotive and industrial segment. He said in the last four to six weeks of the third quarter, “We started to see demand soften from our industrial and automotive customers. I would say that it was really localized to the Asia geography.”

He said the company expects that weaker demand to extend into the current quarter, adding that it’s starting to affect Europe as well as Asia.

“And the net then, is our industrial and auto segment, we’re expecting that to be sequentially down from Q3 to Q4,” Anderson said. 

While the problems regarding EV chips are specific to that industry vertical, the entire chip industry has been hit recently, although semiconductors, like other stocks, got a boost in the past week on optimism about lower rates. 

Semiconductor index finished higher

The iShares Semiconductor ETF NYSEARCA: SOXX was up nearly 7% for the week, as top components Advanced Micro Devices Inc. NASDAQ: AMD, Broadcom Inc. NASDAQ: AVGO and Nvidia Corp. NASDAQ: NVDA all finished higher for the week. 

It’s becoming more clear that the distinct lines of business within the chip industry are determining these stocks’ fate. For example, while data center chips are still looking strong, Wolfspeed Inc. NYSE: WOLF is an example of a stock that declined in August, September and October, just as EV makers like Tesla and Nio were also showing downside trade. 

Wolfspeed stock initially began its tumble in August, after saying costs associated with building new factories for EV chips were significant, and those facilities weren’t yet generating sales. 

Wolfspeed shares finished higher the week ended November 3, but much of the price action could be attributed to simply following the broader market.