What happened
Intel (INTC -1.79%) makes computer chips for PCs and servers. So does Advanced Micro Devices (AMD 0.69%). Qorvo (QRVO -1.92%), in contrast -- the company formed from the merger of RF Micro Devices and TriQuint Semiconductor four years ago -- focuses its efforts on radio frequency solutions used in mobile devices.
You wouldn't necessarily expect these three stocks to move in tandem, but on Thursday they did -- downward. Shares of Intel stock closed the day off 5.5% while archrival AMD lost 9.5%. Qorvo shed 9.1% by close of trading.
Negative news on consumer demand lit up -- and burned down -- tech stocks on Thursday. Image source: Getty Images.
So what
What's the common denominator underlying these declines? On Wednesday after close of trading, market researcher TrendForce reported a precipitous decline in the prices device makers were paying for DRAM memory products: "Contract prices of DRAM products turned downward sharply in 4Q18 by 10% [quarter over quarter]," reported TrendForce.
That's bad news for "major DRAM manufacturers," which "have tried to offset fall[s] in prices by slowing down capacity expansion in 2019," says the researcher. But the news could be broader in scope than just the computer memory industry, because it suggests "the demand outlook for PCs, servers, smartphones, and other end consumer products remains weak" -- a suggestion that Apple seemed to confirm when it issued its now-famous revenue warning last night.
It gets worse: "In 2019, the total capital expenditure for DRAM production is forecast at about $18 [billion], an annual decrease of 10%. This CAPEX is at the most conservative investment level in recent years," said TrendForce.
Now what
All of this sounds like really bad news for tech stocks. Of course, what goes down could still go back up.
TrendForce blamed the "looming trade war between China and the U.S." for declines in consumer demand for electronics -- and said trade war certainly seems to be doing a number on Apple. That being said, early last month U.S. President Donald Trump and Chinese President Xi Jinping appeared to call a halt, or at least a ceasefire, in the trade war. Details are still being hammered out, but in theory at least, the idea is for the two countries to work out a new trade agreement sometime before the end of February. If they succeed, there's still a chance that the declines in tech spending that are causing capacity cuts in DRAM factories (and elsewhere) could reverse course.
And with them, so might the declines in stock price at Intel, AMD, and Qorvo.
Check out the latest Intel, AMD, and Qorvo earnings call transcripts.
