Early chip-industry earnings reports have elicited sighs of relief in a sector where many companies have slashed forecasts — but there are more big tests in the days ahead.
Texas Instruments Inc. TXN,
On Monday, Barclays analyst Blayne Curtis upgraded his rating of Texas Instruments to equal-weight from underweight — while downgrading a slew of other analog-chip stocks — on the basis that the Dallas-based chip maker should be a main beneficiary of the $52 billion in funding from the U.S. Chips Act and should see less of an earnings correction compared with peers.
Curtis also downgraded both NXP Semiconductors NV NXPI,
NXP is scheduled to report Oct. 31, and Analog Devices is scheduled to report Nov. 22.
Shares of Texas Instruments closed up 1.2% on Monday, while U.S. shares of NXP slipped 0.2% and Analog Devices shares fell 1.4%, compared with a 0.6% rise in the PHLX Semiconductor Index SOX,
In a recent note, B. of A. Securities analyst Vivek Arya said that Texas Instruments’ report is crucial, as its outlook could “stir” the auto and industrial chip makers like NXP, Analog Devices and Microchip Technology Inc. MCHP,
“This subsector could get rattled … when leader Texas Instruments reports, and per its historical practice modestly beats Q3, but then potentially issues a conservative Q4 outlook (sales likely guided down 6-10% vs cons. -4% QoQ, given higher consumer exposure), confirming cycle concerns,” Arya said.
“If, conversely, Texas Instruments’ guidance is strong, it could surface concerns about an inventory build mainly because the current macro concerns trump individual company views, especially for highly cyclical diversified chip makers with limited visibility,” Arya said.
Analysts surveyed by FactSet estimate earnings of $2.39 per share on revenue of $5.14 billion, based on Texas Instruments’ forecast of $2.23 to $2.51 per share on revenue of $4.9 billion to $5.3 billion. For the fourth quarter, analysts expect earnings of $2.23 on revenue of $4.94 billion.
Read: Chip stocks could suffer worst year ever as effects of shortage-turned-glut spread
Texas Instruments ranks as one of the best-performing chip stocks year to date, posting a 14% loss, compared with a 40% drop in the PHLX Semiconductor Index SOX,
Meanwhile, shares of chip-making-equipment manufacturer KLA Corp. KLAC,
KLA is under a bit of pressure to produce not just strong results but a strong outlook as well, following last week’s reports from Lam Research Corp. LRCX,
All three companies serve the semiconductor fabrication market, which includes companies like Taiwan Semiconductor Manufacturing Co. TSM,
Recently, Taiwan Semiconductor said it would trim its capital expenditure budget for 2022 by about $5 billion following a string of quarterly hikes. Separately, U.S. shares of the company dropped nearly 4% Monday following a Financial Times report that the third-party fabrication facility, or fab, thinks U.S. efforts to wean off foreign fabs are “doomed to failure.”
Read: Taiwan Semi slumps after reported diss of U.S. chip efforts, analog-chip downgrades also drag on semiconductor sector
B. of A. Securities’ Arya, who counts KLA as his favorite in the space, expects impacts on the company, but not as bad as Lam Research, which estimated a hit of up to $2.5 billion in 2023 from China restrictions, or about 15% of its last reported full year of revenue.
“We expect peer KLA to also be impacted, though by a lower 3-5% or $80-$130 [million] quarterly level,” Arya said. “On the other hand, we estimate peer Lam’s exposure is likely greatest, closer to 7-8% of sales or $350-$400 [million]/quarter given its higher memory exposure. Near-term, Lam’s deferred revenue balance could help offset the China impact.”
Analysts expect fiscal first-quarter earnings of $6.22 on revenue of $2.6 billion, based on KLA’s forecast of $5.70 to $6.80 a share on revenue of $2.6 billion. For the current fiscal second quarter, analysts forecast earnings of $6.11 a share on revenue of $2.56 billion.
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Wallace Witkowski came to MarketWatch from the Associated Press in New York, where he covered the business of Big Pharma, after covering FDA regulation of many of the same companies, as well as medical devices, in the Washington, D.C., area. Based in San Francisco, his current focus is on the more exciting world of semiconductors, videogames and cybersecurity, when he’s not churning out earnings coverage. Follow him on Twitter at: @wmwitkowski.
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