The news about semiconductors is bad and the situation is likely to worsen

Could the news be worse for semiconductors?

First, the global slowdown hit them at the end of last year, then the trade war with China has further intensified in May, and then the ban on Huawei, then the export restrictions imposed by Japan on South Korea.

Did I mention that declining auto sales is also a problem? Sales in the United States are down 3% year-over-year and China 10%, according to Mizhuo.

This has led to a lowering torrent of guidance – and it is about to get worse.

Wednesday, ASML, semiconductor equipment company, announces its results and the street is already preparing for the announcement of bad news: "We expect the consensus estimates for ASML for 2019 and 2020 will be revised down after the June earnings report, "Cowen badyst Mehdi Hosseini wrote in a note on Tuesday.

The bad news has already begun. On Tuesday, Arrow Electronics, which manufactures electronic components and semiconductors, announced a decline in its profits, citing the deterioration of demand, particularly from Asia, and a correction of inventories.

Last week, Vishay, another semiconductor company, announced sales well below expectations in June, also highlighting a correction in inventories and price pressures.

Nobody is waiting for more evidence. Wall Street has cut the estimates like crazy. Profit before taxes for semiconductors for the second half of the year should rise from 36% to 29.3% over 12 months, a 20% reduction. Margins are also shrinking from 33.6% to 26.3%, according to Refinitiv.

And yet, the VanEck Semiconductors ETF, a basket of the biggest players, has only 5% of its historic peak reached at the end of April.

Which give? Cowen admits that it's "a headache for many investors".

It should not be. If there is a belief that investors have today, it is the growth that outweighs all, and the best growth almost always concerns semiconductors. Except when it is not.

Abhinav Davuluri, a Morningstar badyst, said investors were only reflecting the belief that the semiconductor industry will only grow.

"We will not see the situation become healthy again before the start of 2020, but these end markets will be more diversified," he said. "It's not just computers or smartphones, it's cloud computing, artificial intelligence, 5G, the car. These companies are bigger, more consolidated and can better manage the ups and downs. "

Traders also expect lower overall interest rates to come to the rescue: "[W]We expect global credit easing to allow economic growth to re-accelerate in the next two to three quarters, "wrote Evercore ISI recently.

Even the bulls admit that the principle could collapse very quickly. The same Evercore ISI rating admitted: "We readily acknowledge that a simple tweet could ruin everything, especially with Sowing at the center of all of the above."