The Chips Are Up

STMicroelectronics boosts chipmakers globally

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What's going on?

STMicroelectronics, the French-Italian microchip maker based, confusingly, in Switzerland, overclocked its stock and buoyed up competitors’ with a better-than-expected fourth-quarter report on Thursday.

What does this mean?

ST’s quarterly profit beat predictions, but like other chip(maker)s off the old block, it projected a slow start to 2019 due to fewer customer orders. ST’s prediction for improving trends in the second half of the year gave investors a lift, however, along with its stock – which surged 10%.

ST counts Apple among its biggest customers: the fruity giant accounts for 11% of its sales, according to FactSet. ST’s optimism may have encouraged investors to buy shares of other chipmakers on Thursday in the hope that the wider smartphone demand slowdown might not be as bad as feared.

Why should I care?

For markets: Around the world with a bag of chips.

American and Asian tech companies’ results typically shape investors’ feelings towards European competitors, but on Thursday the continent’s tech stocks stood firm. Late on Wednesday, American software firms F5 Networks and Citrix released quarterly forecasts which fell short of expectations, leading some investors to terminate their holdings. Citrix in particular is struggling to lure customers from large one-off payments to subscription cloud services. Europe’s positive vibes, by contrast, hit US shores bigly later on Thursday: chipmaker Xilinx’s own strong results and outlook helped its shares rise 20%.

The bigger picture: Patching over the widening cracks.

Germany probably dodged recession last quarter, but its economy’s still in the headlights. The country’s dominant manufacturing sector (think: making cars) is shrinking, according to a survey released on Thursday. And French data showed business activity shrank more than economists predicted this month. The two largest eurozone economies are struggling to grow, and the region’s central bank said on Thursday that Europe looks riskier than previously. Investors may now expect planned interest rate hikes to be kicked later into 2019 in order to prevent higher borrowing costs from stifling what little eurozone growth there is.

Originally posted as part of the Finimize daily email.

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