The Q4 earnings cycle is in full swing with a number of semiconductor companies slated to report quarterly numbers over the next few days. The industry serves as a driver, enabler and indicator of technological progress.
According to the latest Earnings Preview, technology is one of the six sectors predicted to report double-digit earnings growth this quarter. Per the report, total earnings for the tech sector are projected to be up 21.9% on 10.5% higher revenues.
We note that the technology sector has been a robust performer over the past year. The sector has been benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software.
We believe the aforementioned trends have provided some much-needed opportunity to semiconductor companies to counter loss of business due to the declining PC market, which still consumes the bulk of the chips. Notably, according to the latest report of World Semiconductor Trade Statistics (WSTS), semiconductor revenues climbed 20.6% year over year to $408.7 billion in 2017.
It is believed that the semiconductor industry will continue to witness growth this year as well, although not as high as 2017, but still at a respectable rate. Per the WSTS report, semiconductor revenues are likely to touch $437.3 billion in 2018, representing growth of 7.7%.
The industry is poised to benefit from rising demand for new technologies, deployment of 5G broadband technology across the globe and President Trump’s pro-business policies, including tax cuts, deregulation and outlays on infrastructure.
However, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment as well as management’s ability to implement operating and strategic plans.
In other words, a company may perform dismally despite a favorable business environment if it fails to capitalize on the opportunities due to lack of execution.
Let’s see what’s in store for the following semiconductor stocks, all of which are slated to release quarterly figures tomorrow.
NXP Semiconductors N.V. (NXPI - Free Report) is scheduled to report fourth-quarter 2017 results. The Zacks Consensus Estimate for earnings is pegged at $1.82 per share while the same for revenues stands at $2.37 billion. The estimates, when compared with the year-ago quarter figures, represent 6.7% decrease in earnings and 3% decline in revenues. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NXPI is expanding its footprint in the Internet of Things (IoT) market. In November 2017, the company announced that its microprocessors and microcontrollers will be showcased in a number of IoT and secure edge processing applications based on Amazon Web Services (AWS).
During the soon-to-be reported quarter, the company introduced "LPC54018 MCU-based IoT module with onboard Wi-Fi and support for newly launched Amazon FreeRTOS on AWS." It also announced a strategic partnership with the cloud computing business unit of Alibaba for the development of smart secure devices and IoT products.
Additionally, NXP also agreed to join the “open autonomous driving platform” of Baidu called Apollo. Per the agreement, NXP’s BlueBox development platform will be used by companies and NXP will also be providing semiconductor products for the development of autonomous vehicles. These factors will act as a catalyst. (Read more: NXP Semiconductors Q4 Earnings: What's in Store?)
Next up is Synaptics Inc. (SYNA - Free Report) , which is set to report second-quarter fiscal 2018 results. Synaptics remains focused on enhancing its Automotive Solutions and Touch and Display Driver Integration (TDDI) and fingerprint portfolio. Accretive acquisitions have been a key driver in this regard.
The company’s acquisition of Conexant Systems and Multimedia Solutions Business of Marvell Technology Group is helping it to diversify its business, expand customer base and increase its total addressable market.
The company has a very strong lineup of customers, which include Apple, Xiaomi, Samsung, Huawei and Lenovo among others. Its partnership with Huawei has greatly expanded its offerings. (Read more: Synaptics to Report Q2 Earnings: What's in Store?)
The Zacks Consensus Estimate for the company’s revenues and earnings is pegged at $432.6 million and $1.09 per share, respectively, ,indicating a decline of 6.2% and 26.9% from the year-ago quarter’s actuals. The stock has a Zacks Rank #3.
Diodes Incorporated (DIOD - Free Report) is set to report fourth-quarter 2017 results. The stock has a Zacks Rank #3. The Zacks Consensus Estimate for the quarter under review is pegged at 40 cents, representing remarkable year-over-year growth of 166.7%. Additionally, analysts polled by Zacks project revenues of roughly $270 million, up 16.3% from the year-ago quarter.
We believe that the BCD Semiconductor acquisition is benefiting Diodes by expanding its footprint in the broader analog market and extending its product offerings. We also believe that the company’s product launches and product refreshes will boost revenues. However, stiff competition remains a concern.
Another semiconductor company, Inphi Corporation (IPHI - Free Report) , is scheduled to report fourth-quarter 2017 results. The Zacks Consensus Estimate for the company’s revenues and earnings is pegged at $86.3 million and 36 cents per share, respectively, indicating growth of 6.7% for revenues but a decline of 23.4% for earnings on a year-over-year basis. The stock carries a Zacks Rank #4 (Sell).
We believe that better-than-expected demand for COLORZ inter-data center solutions and coherent DSP products from the ClariPhy acquisition will act as a tailwind for the company. Also, regular rollouts of new and PAM-based products, like Vega and Polaris, will aid the company’s growth in the data center market.
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