There are a number of fourth-quarter earnings reports slated to be released this week. The start to the earnings season has not been very impressive. In fact, fourth-quarter 2018 earnings for the technology sector are anticipated to "decelerate meaningfully" when compared with the preceding two quarters of notable growth.
Per the latest Earnings Preview, technology sector earnings are estimated to improve 4.2% on revenue growth of 4.7%, both down significantly from third-quarter growth rates of 27.3% and 12.7%, respectively.
Factors Likely to Influence Semiconductor Stocks’ Results
Notably, the Semiconductor Industry Association on Dec 31 stated that global semiconductor sales totaled $41.4 billion in November, increasing 9.8% on a year-over-year basis. However, global semiconductor sales were 1.1% lower than October’s total of $41.8 billion, marking a sequential decline for the first time in nine months.
Imposition of tariff owing to trade war between the United States and China has been taking a toll on chipmakers for a while now. Notably, China happens to be one of the biggest markets for semiconductors, while the United States is the biggest semiconductor manufacturing countries.
The weakness can also be attributed to Apple’s AAPL guidance cut on Jan 2. The company blamed weak iPhone demand in Greater China and announced fewer upgrades to its flagship device. Moreover, a slew of notable semiconductor companies including Qorvo, Skyworks, Lumentum, to mention a few, which are reportedly Apple’s suppliers, have trimmed revenue outlook.
Further, sluggishness in China’s economy, weak automotive growth and inventory corrections are likely to limit growth prospects.
Nevertheless, semiconductors are expected to benefit from growing proliferation of high-performance robust chips across various domains ranging from electronic gadgets to cars, planes and advanced weaponry.
Moreover, the semiconductors are positioned well to capitalize on the positive trends in rapid adoption of cloud, Internet of Things (“IoT”), autonomous cars, advanced driver assisted systems (“ADAS”), gaming, wearables, drones, virtual reality/ augmented reality (“VR/AR”) devices, artificial intelligence (“AI”), among other emerging tech.
Furthermore, the accelerated deployment of 5G technology and positive trends in overall IT spending is encouraging.
So far, earnings picture from semiconductors has been somewhat mixed. Although, revenue miss reported by Texas Instruments TXN and cautious outlook from Intel INTC has kept investors vigilant, the impressive earnings beat delivered by Xilinix XLNX, Teradyne and Lam Research buoy optimism.
Given this backdrop, investors interested in the semiconductor domain will keenly await fourth-quarter reports from notable players, including Advanced Micro Devices, Inc. AMD, Maxim Integrated Products, Inc. MXIM and Inphi Corporation IPHI on Jan 29.
Per the quantitative Zacks model, stocks with the perfect combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP have substantially higher chances of beating estimates.
AMD’s fourth-quarter 2018 results are likely to benefit from improving client compute business, primarily due to strong adoption of new products. Further, solid adoption of EPYC products by cloud service providers (CSPs) is anticipated to favor performance of company’s server business.
However, declining trend in PC shipments and uncertain macroeconomic environment remain major concerns.
Advanced Micro Devices, Inc. Price and EPS Surprise
Advanced Micro Devices, Inc. Price and EPS Surprise | Advanced Micro Devices, Inc. Quote
Notably, the Zacks Consensus Estimate for the company’s revenues is pegged at $1.44 billion, indicating decline of 2.7% from the year-ago quarter. Meanwhile, consensus mark for earnings is pegged at 9 cents per share, representing year-over-year growth of 12.5%.
AMD has a Zacks Rank #3 and an Earnings ESP of -6.8%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. (Read more: Will GPU Product Introduction Benefit AMD's Q4 Earnings?)
Maxim’s second-quarter 2019 earnings are anticipated to benefit from the solid momentum of its ASIL compliant battery management system across the automotive end-market, primarily for electric vehicles and driver assistance content.
However, high dependence on Samsung, sluggish bookings and considerable exposure to markets from outside the United States (primarily China) are likely to limit growth prospects in the consumer and industrial end-markets.
Maxim Integrated Products, Inc. Price and EPS Surprise
Maxim Integrated Products, Inc. Price and EPS Surprise | Maxim Integrated Products, Inc. Quote
Notably, the Zacks Consensus Estimate for the company’s revenues and earnings are pegged at $590.5 million and 62 cents per share, both indicating year-over-year decline of 5.2% and 4.6%, respectively.
Maxim has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult.
Inphi’s fourth-quarter 2018 results are expected to benefit from new design wins for PAM-4; sturdy demand for ColorZ inter-data center solutions and momentum in coherent DSP products.
Further, regular rollouts of new and PAM-based products, like Vega and Polaris, are expected to favor the company’s growth prospects in the data center market.
Inphi Corporation Price and EPS Surprise
Inphi Corporation Price and EPS Surprise | Inphi Corporation Quote
Notably, the Zacks Consensus Estimate for the company’s revenues and earnings are pegged at $86.6 million and 42 cents per share, indicating year-over-year growth of 1.1% and 13.5%, respectively.
Inphi has a Zacks Rank #3 and an Earnings ESP of +0.72%, which makes analysts optimistic regarding a plausible earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.
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