Semiconductor stocks have been mixed so far and a broader cyclical slowdown seems apparent from the results. Most players aren’t expecting a protracted downturn mainly because the 5G rollout is coming sooner than expected, because auto content adds are continuing and other secular drivers like artificial intelligence (AI) and Internet of Things (IoT) remain ongoing drivers.
Additionally, technology transition to smaller nodes is a positive for equipment companies. The possibility of a U.S.-China trade war remains a shadow for longer term prospects, but this isn’t a negative in the near term, as it can only lead to inventory adds at customers.
Read on for the details-
Intel (INTC - Free Report) barely topped expectations for the quarter, helped by the Client Computing group, IoTG and Mobileye. Most disappointing was the weakness in data center, where Intel will also see market share loss to Advanced Micro Devices (AMD - Free Report) . Weak NAND prices also didn’t help the quarter.
Guidance for the second quarter disappointed due to continued weakness in data center (from softness in China, to improve in the second half) and weak gross margin (from continued softness in NAND pricing and the 10nm ramp). First products with 10nm chips will be on the market this holiday season. Exiting the 5G modem business that Apple (AAPL - Free Report) is now widely believed to have awarded Qualcomm (QCOM - Free Report) will help shave a billion dollars from operating cost.
EPS of $0.89 topped the Zacks Consensus Estimate of $0.87.
Reported revenue of $16.06 billion was higher than the Zacks Consensus Estimate of $16.01 billion.
The Zacks Consensus Estimate for 2019 is down 4.0% in the last 7 days.
The shares carry a Zacks Rank #3 (Hold).
Texas Instruments (TXN - Free Report) topped our expectations while facing the second straight quarterly decline in what looks like a semiconductor down cycle. Management helpfully commented that historically, semi down cycles were a four to five quarter affair, after which year-on-year growth usually returned.
Still, as experts and analysts have been commenting on for long, there remain several secular drivers for this industry. For TI, the silver lining was communications infrastructure, where 5G deployment led to 30% growth. The core auto and industrial markets, where most of its resources are parked, benefit from increasing content per unit although overall weakness is perceivable at this point. Its personal communications business is feeling the pain from a sluggish smartphone market, especially lower-than-expected business from Apple.
So net-net, the all-important analog business that makes up 70% of its revenue was down a moderate 2% while embedded processing (22% revenue share) declined 14%.
Margins were of course impacted by the lower utilization rate (that’s despite the fact that TI outsources some stuff, mainly in the embedded unit and cuts those outside orders before reducing production at internal fabs).
The company continues to return all of its FCF to shareholders in the form of dividends and share repurchases.
EPS of $1.22 topped the Zacks Consensus Estimate of $1.13.
Reported revenue of $3.59 billion was higher than the Zacks Consensus Estimate of $3.49 billion.
The Zacks Consensus Estimate for 2019 grew 2 cents to $5.18 in the last 7 days.
The shares carry a Zacks Rank #3 (Hold).
Xilinx’s (XLNX - Free Report) quarter was marred by weakness in the data center market (expected to rebound next quarter), as offset by 5G-driven strength in communications, as well as a robust ADAS-driven automotive business. 5G rollout in South Korea and preparation for 5G in China were salient features in the quarter, accounting for the 56% growth in the Asia Pacific. Management expects to grow content with 5G, which is also expected to be a much bigger market than 4G.
The strength in the communications business however impacted margins. Higher 7nm tape-out expenses are also associated with margin pressure. But management expects the margin to normalize in the second half of the year as the end market mix normalizes.
EPS of $0.94 missed the Zacks Consensus Estimate of $0.96.
Reported revenue of $828 million was higher than the Zacks Consensus Estimate of $819 million.
The Zacks Consensus Estimate for 2019 dropped 1.0% to $3.87 in the last 7 days.
The shares carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Leading wafer fab equipment supplier Lam Research (LRCX - Free Report) smashed our earnings estimate and also beat on revenue, helped by a favorable tax rate and the benefit of ongoing share repurchases.
Lower WFE spending in the mid to high-teens percent range driven by inventory burn at NAND and DRAM customers is expected to continue through the year. This will be offset by strength at foundry and logic customers ramping leading edge nodes faster than expected. Foundry in particular was very strong in the last quarter.
Overall, Lam is strongly positioned by virtue of its product range that facilitates technology conversion at the front end, so the advent of AI, 5G and IoT are expanding the served available market while strength in China, which is now a $5 billion+ market supports continued growth.
EPS of $3.70 easily surpassed the Zacks Consensus Estimate of $3.38.
Reported revenue of $2.44 billion was higher than the Zacks Consensus Estimate of $2.40 billion.
The Zacks Consensus Estimate for 2019 grew 3.17% to $14.33 in the last 7 days.
The shares carry a Zacks Rank #3 (Hold).
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) reported a weak quarter as a global slowdown especially in smartphones, consequent inventory buildup at customers and a photoresist contamination at one of its fabs combined to pull down results. U.S.-China trade war related concerns was likely an offsetting factor as it would normally cause Chinese customers to stock pile.
What follows from the above situation is a reduction in utilization, which along with low margins, impacts profitability. Note that the contaminated product will ship this quarter, helping numbers. Also, full-year 2019 gross margin guidance of 50% was reiterated as TSM expects strong 7nm utilization in the second half.
But the main question for investors is the extent of the slowdown and the factors that will play a role in pulling it out.
Management said that channel inventories will largely be burnt down, especially at important customers like NVIDIA (NVDA - Free Report) by the middle of the year, which makes for a stronger second half. So HPC/AI will come back soon.
The sooner-than-expected 5G rollout in Asia and Apple’s truce with Qualcomm that will further boost adoption makes 5G another strong driver of growth.
IoT and automotive applications are other expected drivers.
TSM snatched the process lead from Intel and is already working on 5nm and 3nm while shipping 7nm and 7nm+ in volume. This makes it the go-to place for fabless semiconductor players. The 2019 capex target is being maintained at $10-11 billion, so the company will spend as necessary to maintain its process lead.
Its client roster includes companies like NVIDIA, Apple, Qualcomm and AMD that are all at the leading edge of technology. All except AMD are also market leaders. This positions it very well to benefit from any semiconductor upcycle. It also positions it to benefit from their new product rollouts. This is especially true because of the cyclical slowdown in semiconductors, which could extend for 2-3 quarters more. So new products from customers and shipping to consumption are important factors likely to help TSM.
The Zacks Consensus Estimate for 2019 remains unchanged at $2.12 (after it was lowered by 7 cents 60 days ago).
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