Technology stocks are anticipated to display a lackluster performance this earnings season, primarily owing to softness in the semiconductor space. Continued impact of Huawei ban, higher tariffs and weak China market are likely to have affected third-quarter financials.
Per the latest Earnings Preview, sluggish tech growth is a major drag on the aggregate third-quarter earnings growth rate. Notably, the Tech sector is the biggest earnings contributor to the S&P 500 Index. Tech sector earnings are expected to be down 11.1% from the same period last year.
Taiwan Semi, Cadence Deliver Better-than-Expected Results
Tech stocks have commenced the earnings season on a mixed note with prominent players, including, Taiwan Semiconductor Manufacturing and International Business Machines IBM, and software players like SAP and Cadence having already reported results.
Taiwan Semiconductor reported revenues of approximately $9.4 billion, up 12.6% year over year. The figure was also higher than the guided range of $9.1-$9.2 billion, on better-than-expected demand “from smartphone related applications.”
Meanwhile, IBM reported mixed third-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate while revenues missed the same. Headwinds from IBM Z product cycle and currency fluctuations weighed on top-line performance.
Furthermore, software companies, SAP and Cadence, provided impressive results with year-over-year growth in revenues and earnings. Robust demand for cloud-based applications aided financials.
What’s in the Offing?
Softness in NAND pricing and sluggishness in data center demand is anticipated to reflect in Technology companies’ results in the third quarter. However, improving trend in PC shipments, increasing proliferation of IoT and growing clout of cloud-based applications are likely to have benefited the companies’ in the quarter under review.
In this backdrop, it will be interesting to take a sneak peek into four technology companies that are scheduled to report quarterly earnings on Oct 23:
Microsoft MSFT is likely to deliver an earnings beat in first-quarter fiscal 2020, as it has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.
It has an Earnings ESP of +0.31% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Microsoft Corporation Price and EPS Surprise
Microsoft Corporation price-eps-surprise | Microsoft Corporation Quote
Notably, the Zacks Consensus Estimate for earnings has been stable over the past 30 days at $1.25.
Momentum in Microsoft’s cloud computing service — Azure — is likely to have contributed to the first-quarter performance. Moreover, growing user base of its different applications like Office 365 commercial, Dynamics, Outlook mobile and Teams is expected to get reflected in first-quarter revenues. (Read more: Microsoft to Report Q1 Earnings: What to Expect?)
F5 Networks’ FFIV fourth-quarter fiscal 2019 results are anticipated to reflect the growth in software business, aided by continued adoption of security offerings including web application firewall, bot-defense and mitigation products.
However, the Zacks Rank #3 company is unlikely to deliver a positive earnings surprise because it has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
F5 Networks, Inc. Price and EPS Surprise
F5 Networks, Inc. price-eps-surprise | F5 Networks, Inc. Quote
Notably, the Zacks Consensus Estimate for earnings has been steady over the past 30 days at $2.55. (Read more: F5 Networks to Post Q4 Earnings: What's in the Cards?)
PayPal’s PYPL strength in product portfolio comprising of One Touch, Xoom and Venmo, among others, is anticipated to get reflected in third-quarter 2019 results. Moreover, improving user engagements on the company’s platform, and expanding merchant base are likely to have contributed to the top line.
Nonetheless, the Zacks Rank #3 stock is unlikely to deliver a positive earnings surprise because it has an Earnings ESP of -19.70%.
PayPal Holdings, Inc. Price and EPS Surprise
PayPal Holdings, Inc. price-eps-surprise | PayPal Holdings, Inc. Quote
Moreover, the Zacks Consensus Estimate for earnings has moved south by 5.7% over the past 30 days to 66 cents. (Read more: What's in the Offing for PayPal's Earnings in Q3?)
Xilinx’s XLNX second-quarter fiscal 2020 results are expected to reflect the solid growth in the Wireless end-market, attributable to early 5G production, pre-5G deployments and LTE upgrades.
However, Huawei ban and sluggish automotive sales in China owing to the trade tensions are expected to have affected the second-quarter results.
Moreover, Xilinx is unlikely to deliver a positive earnings surprise because it has an Earnings ESP of -1.33% and a Zacks Rank #4 (Sell).
Xilinx, Inc. Price and EPS Surprise
Xilinx, Inc. price-eps-surprise | Xilinx, Inc. Quote
Markedly, the consensus mark for earnings declined 1.1% over the past 30 days to 92 cents. (Read more: Xilinx to Post Q2 Earnings: What's in the Offing?)
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