The overall second-quarter technology earnings picture, so far, has been somewhat mixed, neither impressive, nor indicating dull prospects.
Per the latest Earnings Preview, technology sector earnings are estimated to decline 7.1%, wider from first-quarter decline rates of 6.4%. Meanwhile, revenues are projected to improve 4.2%, higher than first-quarter growth of 2.9%.
The decline in second-quarter earnings is primarily owing to downturn in the semiconductor space. Notably, the U.S. ban on Huawei hurt growth prospects of notable companies including Xilinx, Skyworks SWKS, Microchip MCHP, to mention a few.
These companies also provided a cautious outlook owing to lingering macroeconomic trade-related uncertainties and higher tariffs on account of the ongoing U.S.-China trade war.
Meanwhile, growth in cloud revenues of Google Cloud Platform and Microsoft Azure are encouraging. However, weakness in server market is a concern.
Coming to storage domain, declining memory prices (both DRAM and NAND) and lower demand from smartphone OEMs are headwinds. However, improving clout of hybrid multi-cloud storage offerings and data-growth driven demand for effective storage solutions holds promise.
Additionally, improving trend in PC shipments during the second quarter is likely to have supported the tech players. Notably, buoyant demand in the commercial market due to the transition to Microsoft’s Windows 10 has been bolstering PC shipment growth. Per IDC, improvement in Intel’s INTC CPU shortage helped PC vendors cater to old orders and ship a healthy stockpile of new PCs into the channels.
In fact, turnaround in PC demand, particularly in the commercial segment, led to the sequential increase in the top line of Intel. Moreover, this semiconductor giant has raised revenue guidance for fiscal 2019 by $500 million, which is encouraging.
Sneak Peak into Upcoming Tech Stocks Earnings Releases
Given the mixed backdrop, investors interested in the technology sector will keenly await upcoming earnings releases from notable players, including Cisco CSCO, NetApp NTAP and HP HPQ.
Notably, Cisco and NetApp are scheduled to report fourth-quarter fiscal 2019 and first-quarter fiscal 2020 earnings, respectively, on Aug 14. Meanwhile, HP is set to report third-quarter fiscal 2019 results on Aug 22.
Cisco’s fourth-quarter fiscal 2019 results are expected to benefit from expanding footprint in the rapidly growing security market. Moreover, order strength and improving traction of the subscription-based business model are other tailwinds.
Cisco Systems, Inc. Price and EPS Surprise
Cisco Systems, Inc. price-eps-surprise | Cisco Systems, Inc. Quote
Moreover, San Jose, CA-based company has a favorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of +0.41%.
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.
The consensus mark for earnings has been steady at 82 cents over the past 30 days. (Read More: What's in the Offing for Cisco Systems' (CSCO) Q4 Earnings?)
NetApp’s first-quarter fiscal 2020 results are likely to be hurt by ongoing macro headwinds impacting storage business.
NetApp, Inc. Price and EPS Surprise
NetApp, Inc. price-eps-surprise | NetApp, Inc. Quote
During the quarter under review, broader weakness in macroeconomic environment compelled this Sunnyvale, CA-based company’s enterprise customers to trim capital expenditure. This negatively impacted NetApp’s storage business, which remains a concern.
Notably, NetApp has an unfavorable combination of a Zacks Rank #5 (Strong Sell) and 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.
The consensus mark for earnings has declined 31.3% over the past 30 days to 57 cents. (Read More: Will Weak Storage Business Hurt NetApp's (NTAP) Q1 Earnings?)
HP’s third-quarter fiscal 2019 results are expected to benefit from growth in the Personal Systems business, backed by an increase in sales for commercial customers. The company’s focus on product innovation & differentiation, pricing and marketing plus sales activities to trigger demand for its PC and Printing products in the market, is an upside.
HP Inc. Price and EPS Surprise
HP Inc. price-eps-surprise | HP Inc. Quote
In the second-quarter of 2019, per IDC and Gartner, Palo Alto, CA-based HP held the second spot among the worldwide PC vendors, trailing only Lenovo. Notably, the company witnessed an upturn in shipment driven by strong growth across key geographies, after suffering a decline in the last two quarters.
HP has an Earnings ESP of 0.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus mark for earnings has been steady at 55 cents over the past 30 days.
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