Citi Gauges Fairchild 'Fallout,' Says It's Bad For These Stocks

In a report published Friday, Citi analyst Christopher Danely discussed what impact Fairchild Semiconductor Intl Inc FCS's second quarter report has on the entire semiconductor space.

Fairchild's second quarter revenue fell short of expectations due to softness from China, the wireless infrastructure end market, Samsung, and distributors. The company also guided its third quarter revenue below the Street's consensus due to ongoing weakness from Samsung Electronics Co Ltd and China.

"We believe the lower results/guidance from Fairchild is mildly negative for semiconductors given the weakness from distribution and China," Danely wrote. "As we said in our July 14 earnings preview, we expect Consensus estimates to decline during 3Q15. However, we believe most of the cuts are already priced in to stocks as the SOX index has already declined roughly 11% from the June 1 peak."

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Danely continued that Fairchild's commentary from China hints of a negative for Microchip Technology Inc. MCHP as it derives roughly 28 percent of revenue from China. The analyst also noted that Texas Instruments Incorporated TXN derives 44 percent of its revenue from China.

Nevertheless, the analyst also stated that he remains "constructive" on both Microchip Technology and Texas Instrument as they both offer "the best combination of capital allocation, demand, and management of business."

Fairchild also indicated demand from wireless infrastructure should improve in the third quarter. Danely stated that this "bodes well" for Xilinx, Inc. XLNX given its 43 percent exposure to the communications end market.

Moving on to Samsung, Fairchild said that demand from a large wireless customer (Danely suggested the company was referring directly to Samsung) was weaker than expected in the second quarter and will continue in the third quarter. As such, this "negatively impacts" Maxim Integrated Products Inc. MXIM as Samsung represents 18 percent of its 2015 revenue.