New China ban threat puts U.S. chip-equipment makers at forefront of tech stock rout



MARKETWATCH PHOTO ILLUSTRATION/ISTOCKPHOTO

Chip equipment makers led technology stocks lower Tuesday following reports that U.S. sanctions could spread to businesses like Semiconductor Manufacturing International Corp., China’s largest chip fabricator.

Shares of KLA Corp.
KLAC,
-7.74%
,
Lam Research Corp.
LRCX,
-6.86%
,
and Applied Materials Inc. AMAT all fell more than 6% as U.S. stock markets opened on Tuesday following Labor Day holiday weekend, while the PHLX Semiconductor Index SOX was down nearly 3%.

Over the weekend, reports surfaced that SMIC could be added to a U.S. “entity list” like telecom equipment maker Huawei back in May. On Monday, when U.S. markets were closed, SMIC
981,
+3.07%

shares dropped more than 20% in Hong Kong trading.

Meanwhile, the U.S. tech-heavy Nasdaq Composite Index
COMP,
-2.33%

was down 2.6% and the S&P 500 index
SPX,
-1.50%

was off 1.8% Tuesday.

Investors may be worrying that SMIC is just another one of many Chinese companies to get added to the list, given President Donald Trump’s recent bellicosity toward Chinese-owned apps TikTok and WeChat .

“Will the Trump Administration stop with only Huawei and SMIC?” speculated Evercore ISI analyst C.J. Muse in a Tuesday note. “Hard to say,” he said, warning that other chip makers in China could be next. Should the potential ban be limited to SMIC, then chip-related stocks have been oversold, Muse said.

Tech stocks have been getting battered since last week, when the tech sector gave up in two sessions at least half of seven week’s worth of gains from a strong earnings season .

Morgan Stanley analyst Joseph Moore said adding SMIC to the list “certainly would be a negative impact to our semiconductor capital equipment coverage”. Moore noted that SMIC had plans of spending $6.7 billion in capital equipment this year alone.

“The bigger issue is that the China risk factor for semiconductor capital equipment continues to grow, as U.S. Commerce Department actions continue to impact new areas,” Moore said.

Susquehanna Financial analyst Mehdi Hosseini took a much less fearful view of the development, remarking that “policy has also proven a double edged sword as efforts of the past few years in isolating China have not really proven a winning strategy”.

Hosseini said “with secular trends suggesting a bright future for chip consumption and thus [semiconductor capital equipment], especially as more of the demand shifts to cloud/commercial end markets, the pull backs caused by such headline risks can also offer a buying opportunity, in our view.



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Nasdaq Futures Slump 230 Pts; Tech Rout Continues By Investing.com


© Reuters.

By Peter Nurse   

Investing.com – U.S. stocks are set to open lower Tuesday, with the tech sector seen continuing last week’s rout as investors reevaluate their stance after recent strong gains.  

At 7:10 AM ET (1110 GMT), traded 21 points, or 0.6%, lower, the contract fell 20 points, or 0.1%, while underperformed, dropping 230 points, or 2%. 

The major averages all hit two week lows last week. That said, the tech-heavy had its worst week since March due to doubts over positioning and stretched valuations. These worries were exacerbated on Friday when the Financial Times reported that options trading by Japan’s Softbank (OTC:) had inflated these stocks.

Still, the question remains whether this selloff signifies anything more than a correction after the tech sector’s sharp runup throughout the Covid-19 pandemic.

Technology stocks remain investors’ best bet and can continue driving returns in the current bull market, according to Peter Oppenheimer, Goldman Sachs’s chief global equity strategist, in a research note Monday.

Goldman maintained its overweight recommendation in tech stocks in every region thanks to the sector’s strong cash generation, earnings and stable balance sheets.

With this all in mind, the focus will remain on the tech sector Tuesday, with the likes of Tesla (NASDAQ:), Apple (NASDAQ:), Facebook (NASDAQ:) and Microsoft (NASDAQ:) all sharply lower in premarket trade.

Meanwhile, President Donald Trump continued to use China as a punchbag, promising a “decoupling” of the U.S. economy from the Chinese one if he is re-elected in November.

The data slate is largely empty Tuesday, but interest will soon turn to Friday’s inflation figures for August. These are expected to show core CPI rising 0.2% and 1.6% on a basis, still clearly below the 2% level the Federal Reserve is now aiming for as an average.

Meanwhile, lawmakers are returning to Washington after the August recess facing the prospect of a government shutdown, and having to decide whether to approve an elusive fifth coronavirus stimulus package.

Oil prices dropped Tuesday, falling to their lowest in 10 weeks, with the WTI contract suffering the bulk of the selling after the U.S. Labor Day long weekend, which marks the end of the peak U.S. driving season.

futures traded 5.2% lower at $37.70 a barrel, while the international benchmark contract fell 3.1% to $40.73. 

Elsewhere, fell 0.6% to $1,923.35/oz, while traded 0.1% lower at $1.1802.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Synnex Corporation: A Value Play In The Tech Sector (NYSE:SNX)


With technology stocks having had an impressive run since the start of the year, it would seem like value in this sector is hard to come by. At times, it may seem like the words “technology” and “value”, when used together, are an oxymoron. However, I believe one can find value, even in the tech sector, if one is willing to do a little bit of digging. In this article, I’m focused on Synnex Corporation (SNX), which may be one such value stock in the tech sector. I evaluate what makes this stock a potentially good long-term investment. So, let’s get started.

A Look Into Synnex

Synnex Corporation is a leading technology distribution, logistics, and integration services company with a presence on 6 continents and 40 countries. It has over 400 OEM partners, and distributes over 40K technology products across 25K resellers, systems integrators, and retailers. This massive scale, along with 225K employees, is what helps make Synnex a Fortune 200 company. Last year, the company generated over $23 billion in total revenue. It should be noted that Synnex intends to spin off Concentrix, its digital transformation and marketing business, in the second half of 2020, with current shareholders owning shares in both companies. For the purposes of this article, I will evaluate Synnex in its current form as a consolidated entity.

What I like about Synnex is that it sits at the cusp of a second digital revolution, which has and will continue to see a strong ramp-up in demand for security, collaboration, networking, and data center solutions. This is supported by its operating divisions, Synnex Westcon and Comstor. These two divisions go beyond traditional distribution services by providing advanced services and training. Specifically, the Comstor segment specializes in Cisco (CSCO) technology and helps Cisco’s partners and value-added resellers to design a comprehensive sales strategy with its specialized technical and market expertise. In addition, Synnex’s leading position is supported by its numerous accolades, such as being recognized as HP’s (HPE) Partner of the Year in August 2020.

I view this second digital revolution as an attractive opportunity, as it results in both strong revenues and a higher-margin profile for the business. As seen below, revenue has grown at a fast clip in recent years, with a 3-year CAGR of 19.1% from 2016 to 2019. Even more impressively, the operating margin (calculated as op income divided by revenue) increased at an impressive rate, from 2.8% in 2016 to 3.8% in 2019, due to higher-margin services and operating efficiencies. This resulted in a much faster operating income CAGR of 31.8% over the same time period.

(Source: Created by author based on company financials)

As seen above, Synnex’s trailing 12 months’ results have been impacted by the risks and headwinds stemming from COVID-19. This resulted in a 2% YoY consolidated revenue decline on a constant currency basis. Consolidated non-GAAP operating income declined by 34% YoY due to the extra cost of running the business during the pandemic. This resulted in an operating margin of 2.9%, which takes the company back to levels last seen in 2018. Management expects these difficulties to continue into the current third quarter. However, what’s encouraging is that they see an acceleration of higher value offerings, as noted on the last conference call (emphasis added by author):

“While the effects of this devastating pandemic on our clients and our business volumes in the long-term remains uncertain, a silver lining appears to be an acceleration to some of our high-value offerings by our clients. Our ability to deliver exceptional services globally and to leverage our technology, digital and analytics expertise allows us to be a full service partner for our clients.”

In addition, Synnex achieved 90% staff productivity by the end of Q2, and expects to gain full productivity by the end of Q3. Looking forward, I’m encouraged by the minimal revenue impact that the company has seen, and expect the staff productivity and margin issues to be worked out as Synnex adjusts to operating in the current environment.

Turning to earnings estimates, it appears that 2020 is expected to just be a speed bump, as analysts expect 2021 EPS to ramp up by 24%. This results in a forward P/E of just 9.4 (based on 2021 EPS), which puts Synnex shares in solid value territory.

In addition, analysts appear to be rather bullish on the shares, with an average rating of 4.6, with 4 being “Bullish” and 5 being “Very Bullish”, and a price target of $139, which sits comfortably above where the shares are trading at today.

Investor Takeaway

Synnex Corporation is a leading technology distribution, logistics, and integration services company with a presence on 6 continents and 40 countries. While COVID-19 has presented the company with headwinds, I see it as being a speed bump as the company adapts to operating in the current environment. Longer term, I see Synnex as benefiting from a second digital revolution as IT spend ramps up with respect to security, collaboration, networking, and data centers.

I see the shares as being attractive at the current price of $125.17 and a forward P/E of 11.7. Shares appear to be even cheaper based on 2021 EPS estimates, which would bring the P/E down to 9.4. As such, I have a favorable view of the stock and see further upside potential for this value play in the tech sector.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Asian Stocks Mixed, Rebound From U.S. Tech Shares Tumble Continues By Investing.com


© Reuters.

By Gina Lee

Investing.com – Asian stocks were mixed on Tuesday morning, with markets  cautiously continuing a rebound from the previous week’s U.S. technology shares selloff.

The shares, which have seen mammoth gains throughout the COVID-19 pandemic, due to doubts over positioning and stretched valuations.

But some investors remained unconvinced that the rebound signifies anything more than a correction.

“In the greater picture, the stock market correction looks just that, a correction,” Oanda APAC senior market analyst Jeffrey Halley told Bloomberg, but added that the underlying drivers of the so-called “buy everything” trade remain intact.

China’s was down 0.34% by 11:33 PM ET (4:33 AM GMT), reversing earlier gains. The  fell 0.77%.

U.S. President Donald Trump stoked fresh tensions with China with his threat to decouple, or curb, the economic relationship between the two countries.

“So, when you mention the word decouple, it’s an interesting word … we lose billions of dollars and if we didn’t do business with them, we wouldn’t lose billions of dollars. It’s called decoupling, so you’ll start thinking about it,” Trump said during a White House news conference on Monday in which he also vowed to bring jobs back to the U.S. from China.

Trump’s comments echoed comments made in June by Treasury Secretary Steven Mnuchin, who threatened a decoupling of the U.S. and Chinese economies would result if China did not allow U.S. companies were not allowed to compete on a fair and level basis.

Meanwhile, Chinese tensions with India also mounted after renewed clashes between the two countries along a disputed border earlier in the week. China said Indian troops violated a bilateral agreement and fired warning shots in the air on Monday.

Chinese border guards taking “countermeasures” according to Zhang Shuili, spokesman for the People Liberation Army’s Western Theatre Command, said in a statement on Tuesday. But Zhang’s statement did not specify what countermeasures were taken, or whether Chinese troops also fired warning shots.

Hong Kong’s tumbled 0.80%.

Japan’s gained 0.45%, with hints of a snap election from Yoshihide Suga ahead of leadership elections scheduled for the following week. Suga is the favorite to succeed incumbent prime minister. Investors were also digesting mixed Japanese economic data released earlier in the day showing that contracted 28.1% year-on-year during the second quarter, beating the predicted 28.6% drop but far below the previous quarter’s 2.2% fall. But and missed their forecasts.

South Korea’s gained was up 0.46% and In Australia the rose 0.47%.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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World shares rebound, try to shake off U.S. tech rout scare By Reuters


© Reuters. FILE PHOTO: A man wearing protective face mask walks in front of a stock quotation board outside a brokerage in Tokyo

By Hideyuki Sano

TOKYO (Reuters) – U.S. stock futures and Asian shares regained some footing on Tuesday following a small bounce in European shares as investors looked to whether high-flying U.S. tech shares could recover from their recent rout.

MSCI’s broadest index of Asia-Pacific shares outside Japan () rose 0.2% while Japan’s Nikkei () gained 0.4%. U.S. financial markets were shut on Monday for a public holiday while Europe’s STOXX 600 index () was 1.7% higher.

Globally traded U.S. S&P500 futures erased their Monday losses to trade 0.6% higher. Tech shares remained more fragile, however, with Nasdaq futures standing flat after having lost more than 6% late last week.

While many market players say they cannot pinpoint a single trigger for the Nasdaq’s sudden plunge, valuations have been stretched after its gain of 75% from a bottom hit in March.

Tesla (O:), the poster child of the euphoria in U.S. big technology stocks with a year-to-date gain of a whopping 400%, looks set to fall after it was excluded from a group of companies that were being added to the S&P 500.

It lost 6.5% in after-hours trade on Friday and fell 2.7% in Frankfurt (F:) on Monday.

“Those tech shares were becoming expensive so I would see their latest fall as a healthy correction,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui (NYSE:) DS Asset Management.

Risk assets also face headwind from creeping doubts that U.S. policymakers may not be willing to compile massive stimulus as some traders had hoped for.

“The headline figures from Friday’s U.S. jobs data were pretty good, so that could lead to speculation policymakers may no longer be eager to dole out trillions of dollars to support the economy,” said Masahiko Loo, portfolio manager at AllianceBernstein (NYSE:).

“Markets may have gone too far in expecting the Federal Reserve to announce more easing steps this month,” he said, adding receding expectations is one reason behind a rise in U.S. bond yields last week.

The 10-year U.S. Treasuries yield stood at 0.716% (), off a five-month low of 0.504% touched in August.

In currencies, sterling dropped after the European Union told Britain on Monday that there would be no trade deal if it tried to tinker with the Brexit divorce treaty.

The warning came after British Prime Minister Boris Johnson’s government was reported to be planning new legislation to override parts of the Brexit Withdrawal Agreement it signed in January.

The pound lost 0.80% on Monday to $1.3167 , near its lowest levels in two weeks.

Other currencies barely moved with rises in U.S. yields helping to stem the dollar’s recent weakness.

The euro eased slightly overnight to $1.1818 () while the dollar was little moved at 106.31 yen . Gold was little changed at $1,930.9 per ounce .

Oil prices dropped to five-week lows after Saudi Arabia made its deepest monthly price cuts to supply for Asia in five months and as uncertainty over Chinese demand clouds the market’s recovery.

U.S. WTI futures () fell 1.4% to $39.23 per barrel.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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