A Look at Semiconductor Companies that Miss Analysts’ Estimates
Investors Unhappy with 4Q15 Semiconductor Earnings
Most semiconductor companies meet analysts’ estimates
So far, we have seen that external factors such as slowing demand for smartphones and PCs, seasonal weakness, and macroeconomic uncertainties impacted semiconductor revenues. Most companies reported the December 2015 quarter’s earnings that either topped analysts’ estimates or met them.
However, four major companies missed these estimates. Let us look at the scenarios that led to lower-than-expected earnings.
Companies that missed analysts’ estimates
Two companies with high exposure to the industrial and consumer sectors missed the revenue estimates by a higher margin as their cash position was not strong enough to sustain headwinds in the consumer sector.
In the December 2015 quarter, Fairchild Semiconductor’s (FCS) revenue fell by 6% YoY to $317.2 million, missing the analyst estimate of $326.74 million. Revenues were hit by high exposure in the industrial, appliance, consumer, and mobile markets. Although it improved margins through cost-cutting measures, negative free cash flow in two of the four quarters of 2015 implied its weakness to withstand headwinds.
FCS is now being acquired by ON Semiconductor (ONNN), whose revenue fell by 2.8% YoY to $840.3 million, missing the analyst estimate of $850.78 million. A 12% YoY growth in automotive was offset by a 26% YoY decline in the consumer sector. It does not has sufficient cash to meet its long-term debt, which would now grow fourfold as it raises debt to fund the FCS acquisition. ON Semiconductor reported weaker guidance for the March 2016 quarter.
TXN and QRVO
On the other hand, Texas Instruments (TXN) and Qorvo (QRVO) missed consensus revenue estimate by a slight margin due to high exposure to Apple.
TXN’s revenue fell 2.45% YoY to $3.19 billion, missing the analyst estimate of $3.2 billion. The company was hit by the slowdown in the industrial and personal electronics segments, which together account for 60% of its revenue. However, it improved its margin by restructuring manufacturing footprint. It posted weaker guidance for the March 2016 quarter.
QRVO’s revenue rose by 56% YoY to $619.7 million, missing the analyst estimate of $620 million. Although revenue grew annually, on a sequential basis it fell 12%. The company earns over 80% of its revenue from the mobile segment, of which 50% comes from Apple. It lowered its expectations for the December 2015 and March 2016 quarters after Apple (AAPL) scaled back iPhone production.
Both companies have sufficient cash reserves to meet long-term debt, indicating their ability to withstand short-term headwinds. The Market Vectors Semiconductor ETF (SMH) has exposure in 26 semiconductor stocks. It has a 5.28% exposure in TXN, 1.01% in QRVO, and 0.74% in ONNN.
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