Wall Street knows that chip and handset sector names are likely to miss consensus numbers and make scary comments about Europe. That is why names like QCOM, AMD and NVDA declined steeply into mid-June. But then a spate of OK European retail numbers, tolerable US consumer spending figures and some EU debt crisis relief led to a mini-bounce in the tech sector in the past weeks. Samsung posted terrific smartphone numbers and Apple is on the verge of major new product announcements. That has helped Nasdaq bounce smartly from early June lows.
So Wall Street expectations for consumer electronics reports dived in the spring and then rebounded in June/July. Now we're starting to get up-to-minute guidance commentary from chip names. And tonight's AMD warning is one key test of sentiment. Have investors really priced in European/Chinese weakness correctly or not?
At 4.40 PM, AMD was down 5.7% from the close. Three problems with the warning. First; AMD is guiding for -11% sequential sales decline, which is steep indeed. Second; the warning comes just ten days before the earnings report. This could imply the revenue trends deteriorated at the very end of the quarter, forcing AMD to warn at a relatively late date of July 9. Third; AMD cites "softer-than-expected channel sales in China and Europe ". The addition of China here is an unwelcome surprise. It comes just days after Nike shocked investors with its exceptionally weak, 2% Chinese sales growth. China Mobile's 3G subscriber growth slowed down to just 3.9% MoM pace in May. This is widely attributed to lack of iPhone, but could also imply softening Chinese smartphone growth.
Of course, AMD is not a reliable gauge of the global consumer electronics market. But on the heels of deeply disappointing numbers from RIMM and HTC, the Monday warning is an inauspicious start for Nasdaq's week. It can be argued that investors were anticipating weakness from AMD- they just got a bit more than they were bargaining for.
