Shares of semiconductor contract manufacturing and design company GlobalFoundries (NASDAQ:GFS) fell sharply amid a challenging backdrop. Primarily, GFS stock slipped about 8% in the late afternoon hours after the company posted less-than-encouraging results for the first quarter. Also, its Q2 sales guidance underperformed expectations. In addition, the enterprise is also in the middle of a leadership transition.
According to MarketWatch, GlobalFoundries reported net income of $254 million. On an adjusted basis, net income came out to $290 million, translating to earnings per share of 52 cents, up from 42 cents in the year-ago quarter. Also, the latest result beat the FactSet consensus, which called for EPS of 50 cents.
However, disappointment arrived on the revenue front. Per MarketWatch, the top line landed at $1.84 billion, down from the $1.94 billion posted in the year-ago quarter. To be fair, the latest sales haul beat the consensus target of $1.83 billion.
Nevertheless, the pain for GFS stock centered on the Q2 sales guidance. Management expects revenue to hit between $1.81 billion to $1.85 billion. However, the consensus estimate called for $1.85 billion.
GFS Stock Struggles Against the Latest Challenges
Though GFS stock represents one of the decent market performers this year – gaining about 6% since the January opener — it incurred significant struggles in the charts recently. For example, in the trailing one-month period, GFS dropped about 19%.
As Reuters pointed out, the chip industry faces a significant broader headwind, suffering from a slowdown in orders from data center operators and consumer electronics specialists. Moreover, experts in the field anticipate that a recovery might not materialize until later this year.
Specific to GFS stock, Reuters mentioned that GlobalFoundries “reported a nearly 30% drop in revenue at its mainstay business that caters to the smartphone market and accounts for more than a third of its total sales.”
To be fair, the automotive unit provided optimism, with revenue more than doubling to $180 million. This increase stemmed from “a burst of demand from car makers, which were ramping up output after a dearth of chips hampered operations over the past two years.”
Still, investors may be skittish about GFS stock because the underlying enterprise is also in the middle of a leadership transition. Earlier today, GlobalFoundries announced new appointments for the roles of chief financial officer and chief business officer.
Though such executive transitions can be invigorating, they present concerns for the semiconductor company because of the difficult environment.
Why It Matters
According to TipRanks, Wall Street analysts still peg GFS stock as a strong buy. On average, their price target stands at $82, implying about 50% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.