Following the recent earnings warning from Microchip (NASDAQ:MCHP), just about every stock in the semiconductor space saw mild to dramatic declines on Oct. 10.
This wasn't due simply to Microchip's missing its quarterly estimates, though. CEO Steve Sanghi stated that this weakness is likely to be industrywide and that it "will be seen more broadly across the industry in the near future."
However, while this claim from Microchip is bold and, in general, bad news for chip stocks if true, it's not clear that Microchip's results are relevant to all semiconductor companies.
There are, however, three companies' earnings reports that will be critical to either confirming or countering the "industry correction" that Microchip's CEO alleged in Microchip's earnings warning.
No. 1: Intel
Intel (NASDAQ:INTC) will report its third-quarter earnings and fourth-quarter guidance on Oct. 14. While there is a very low chance that Intel will "miss" its third-quarter numbers (Intel probably would have negatively pre-announced in this case), the fourth-quarter guidance is now what investors seem to be worried about.
Much of Intel's business comes from the PC industry, so if Intel reports that overall PC demand should remain healthy for the fourth quarter, then this could be a sigh of relief for investors not just in Intel, but also in other chip companies that have non-trivial dependence on the PC market.
Note, too, that Intel sells a lot of chips into the data center. This includes not only traditional enterprise servers, but also cloud servers, wireless infrastructure, and high-performance computing. Plenty of chip companies depend heavily on these end markets, so if Intel reports continued strength here, those companies' stock prices could rebound.
No. 2: Qualcomm
Qualcomm (NASDAQ:QCOM) is a company that depends very heavily on sales of chips into mobile and wireless products such as smartphones and tablets. Many other chip companies are highly levered to the mobile-device market, which makes Qualcomm's report, scheduled for Nov. 5, particularly important to chip stock investors.
If Qualcomm comes out and says it's seeing healthy demand from its customers, then this could be a sigh of relief for investors in other mobile-related chip stocks. However, if the company hints that there is a demand slowdown (perhaps because of high inventory levels at its customers), then this could serve as a confirmation of Microchip's claims.
No. 3: Taiwan Semiconductor
The final, and perhaps most important, chip bellwether is Taiwan Semiconductor (NYSE:TSM). The company is the world's largest contract manufacturer of chips, which means that it's exposed not only to a broad array of chip companies, but also to many different sectors within the chip industry.
Taiwan Semiconductor usually provides a breakdown of its quarterly revenue by sub-segment and by technology generation in its earnings presentations. This will help investors more accurately determine which chip stocks should be bought on the dip and which ones should be avoided or even shorted.
While the company will report its third-quarter results and fourth-quarter guidance on Oct. 16, keep in mind that the company already reported revenue for September, which was up 35.1% year over year. The key thing to watch, as it will be with Intel's report, is the company's guidance for the fourth quarter.