3 Semiconductor Stocks Likely to Beat Q3 Earnings Estimates
In the third quarter of 2023, semiconductor stocks witnessed healthy demand trends with an accelerated pace of 5G deployment and increased fiber densification. Despite a challenging macroeconomic environment, the industry seemed to benefit from higher demand for scalable infrastructure for seamless connectivity amid a wide proliferation of IoT devices.
This is evident from the monthly data on global semiconductor sales from the Semiconductor Industry Association. For July 2023, monthly sales improved 2.3% sequentially to $43.2 billion, while that for August 2023 was up 1.9% to $44 billion.
Semiconductor chips are the building blocks of telecommunication equipment, electronic goods and IoT devices. A steady pace of 5G deployment and investments by leading carriers to increase their fiber footprint in rural areas to bridge the digital divide seemed to infuse confidence in the sector. In addition, a seamless transition from an economy-of-scale network operating model to demand-driven operations that offer easy programmability and flexible automation were tailwinds.
Factors at Play
5G Rollout, IoT Devices Gaining Traction
5G has fast-tracked the wide proliferation of video and other bandwidth-intensive applications with a data transmission rate of about 10-100 times faster than the existing 4G networks. Billed as the technology of the future with faster download speed and low latency, 5G is touted as the primary catalyst for next-generation IoT services. These include connected cars, augmented reality, virtual reality platforms, smart cities and connected devices that are likely to revolutionize key industry verticals.
To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services. Moreover, a faster pace of 5G deployment is expected to augment the scalability, security and universal mobility of the telecommunications industry and propel the wide proliferation of IoT devices, smartphones, wearables and tablets.
Fiber Densification
Expansion of fiber optic networks by carriers to support their 4G LTE and 5G wireless standards, as well as wireline connections, are acting as tailwinds. The fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage.
Network Convergence
With operators moving toward converged or multi-use network structures, combining voice, video and data communications into a single network, the industry is increasingly developing solutions to support wireline and wireless network convergence. The industry players have enabled enterprises to rapidly scale communications functionalities to a vast range of applications and devices with easy-to-use software application programming interfaces.
The wide proliferation of cloud networking solutions further results in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.
Focus on Novel Technologies
Adoption of state-of-the-art technologies such as AI, ML, DOCSIS (Data Over Cable Service Interface Specification), DSL (Digital Subscriber Line) and Next Generation PON (Passive Optical Network) platforms for the highest bandwidth applications have led to higher demand for semiconductor chips.
Further, a combination of network-based video transcoding, packaging, storage and compression technologies required to deliver new IP video formats and home gateways to connected devices inside and outside the home are increasingly driving the industry growth.
How to Pick?
A multitude of semiconductor stocks is likely to report earnings in the coming weeks. A solid earnings performance of the technology sector could sow the seeds for future investments and R&D as the industry seeks to capitalize on the inherent growth potential.
Among a diverse range of companies, choosing the right stock for your portfolio could appear to be a colossal task. While it is impossible to be sure about such outperformers, our proprietary methodology makes the process fairly simple.
Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), chances of an earnings surprise are as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is an important ingredient of our proven model, which, along with a top Zacks Rank, creates the perfect combination to determine stocks with the best chances to pull off a surprise in the upcoming earnings announcements. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Potential Winners
Silicon Motion Technology Corporation SIMO: Founded in 1995, Silicon Motion is a leading developer of microcontroller ICs for NAND flash storage devices. The semiconductor company also designs, develops and markets high-performance, low-power semiconductor solutions for OEM and other customers.
Silicon Motion is well-equipped to adapt to industry changes as it has collaborated with flash vendors to develop proprietary controller technology. The company has commenced initial sales of 3D SSD controllers to flash partners and expects this controller to be a significant SSD controller growth driver. Accelerated product sales and favorable industry trends signal bright prospects for Silicon Motion. Silicon Motion currently has a Zacks Rank #2 and an Earnings ESP of +3.00%. The company is scheduled to report results after the closing bell on Nov 1.
Silicon Motion Technology Corporation Price and EPS Surprise
Silicon Motion Technology Corporation price-eps-surprise | Silicon Motion Technology Corporation Quote
Qorvo, Inc. QRVO: Headquartered in Greensboro, NC, Qorvo is a leading provider of core technologies and radio frequency (RF) solutions for mobile, infrastructure and aerospace/defense applications. The company offers a complete product portfolio, targeting the highest growth segments of its market, including filters, switches and tuners. Qorvo is well-positioned to win some of the industry's highest growth opportunities by leveraging its diversified product portfolio, systems-level expertise, R&D and manufacturing scale and internal assembly and test capabilities.
Qorvo has introduced highly integrated front-end solutions that simplify and accelerate the implementation of multimode, multi-band 4G smartphones and tablets. These new RF Fusion front-end solutions showcase the company's ability to help leading OEMs quickly launch their next-generation flagship devices.
Qorvo's RF Flex solutions have been selected to support multiple upcoming leading 4G reference designs. RF Flex delivers best-in-class current consumption to enable superior device performance and leading-edge design flexibility to simplify regional customization. This Zacks Rank #1 stock has an Earnings ESP of +4.46%. You can see the complete list of today’s Zacks #1 Rank stocks here. The company is scheduled to report results after the closing bell on Nov 1.
Qorvo, Inc. Price and EPS Surprise
Qorvo, Inc. price-eps-surprise | Qorvo, Inc. Quote
Synaptics Incorporated SYNA: Headquartered in San Jose, CA, Synaptics offers various semiconductor products for audio-video solutions that help humans engage with connected devices and data throughout the home, at work, in the car and on the go. It designs human interface solutions such as touchpads for notebook computers, capacitive touchscreen controllers for handsets and biometric fingerprint sensors for mobile devices.
Synaptics continues to benefit from a solid momentum in the IoT applications market. The company's robust converged video, vision, audio and voice technologies and strengthening AI and wireless connectivity capabilities remain tailwinds. This Zacks Rank #2 stock is well-positioned to capitalize on the growth prospects in the consumer IoT market on the back of its growing investments in far-field voice technology. It has an Earnings ESP of +3.54%. The company is scheduled to report results on Nov 9.
Synaptics Incorporated Price and EPS Surprise
Synaptics Incorporated price-eps-surprise | Synaptics Incorporated Quote
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