Earnings Results from Chip Manufacturers Spring Hope
Shares of semiconductor companies have been struggling lately amidst concerns of declining demand. Three of them reported positive quarterly results today though.
Three major chip manufacturers released their quarterly earnings Wednesday, with all providing encouraging results. Texas Instruments, Lam Research, and Xilinx saw their earnings announcements beat expectations, and with a sector that is seen as a little beat up lately, this is not only good news for the companies but for the sector as a whole.
The sort of things that these companies make are the building blocks of tech hardware, and improving results with companies like this do serve as a good indicator of the health of hardware companies generally. This is particularly the case with Texas Instruments which is used as such a reference point by many, even seen as being the canary in the coal mine so to speak.
Even though beating earnings expectations may only indicate that things may not be as bad as we thought, that in itself is a positive and is welcome news for markets in particular.
Texas Instruments saw their earnings come in at $1.27 a share, in contrast with its Q4 earnings of a year ago of just 34 cents. This result only beat the projections by 4 cents a share, but that is still meaningful.
Traders in the off-hours market aren’t all that excited about the news though, although Texas Instruments is still trading 1% higher, and has regained most of its dip it saw on Wednesday leading up to these results.
The Canary in the Coal Mine Speaks
Texas Instruments was the company that announced in the prior quarter that semiconductor demand is slowing, a view that rippled throughout the chip industry. Specifically, CFO Rafael Lazardi told us “we are heading into a softer market.”
Not surprisingly, this brought both Texas Instruments and their competitors’ stocks down, but when this big of a company is seeing dwindling demand and expects more of it, they aren’t alone in being worried.
Texas Instruments being at the forefront of this positive earnings news is therefore particularly encouraging. If this company can come in better than expected, then perhaps this means even more.
The after-hours market is more enthusiastic about fellow chip maker Lam Research though, which is up 5%. Things are improving there in spite of their former CEO having to resign recently, and we therefore may expect a bigger reaction with this one given the greater level of concern.
New Lam Research CEO Tim Archer expressed concerns about the chip business, but is confident that the company will continue to adapt and further leverage new opportunities such as Deposition and Edge technology.
Xilinx looks like it may end up being the star of this show, with their earnings forecast causing a 7% price rise in after-market trading. They reported earnings of 93 cents a share, up from the 85 cents a share that analysts were expecting.
Year over year comparisons for the quarter is where Xilinx really stands out. A year ago, the company reported a loss of 5 cents per share, so they have come a long way in just this short period.
Xilinx as a stock has already been performing pretty well before this, and actually posted a gain in Q4, unlike the market and most other stocks. It did take a modest dip in October of about 15%, but still ended the month up and it hasn’t looked back since, including putting in some all-time highs over this period.
We may be in store for another all-time high on Thursday with Xilinx if after-hours trading is any indication. The fact that a chip maker is achieving all this is good news for the tech sector in general as well.
Xilinx just put in record revenues though, so based upon their business performance, record stock prices would not be undeserved.
Results Benefitting Competitors’ Stocks as Well
Other major players in the semiconductor industry are also benefiting from all this positive news. In after-hours trading, both Applied Materials and KLA-Tencor Corp are up 3%. Analog Devices, Nvidia Corp, and Maxum Integrated Products are all up 1%.
The day before, ASML Holdings beat their earnings estimates and saw their stock jump 1.6% on Wednesday, although we might not want to read too much into this one, as it is believed that this result bettering estimates was based upon a reduction in their corporate tax rates, rather than from an upsurge in business.
We will see two more big chip makers, Intel and AMD, report their earnings tomorrow, and with these huge players given an opportunity to contribute to the discussion, we’ll know even more about the state of the health of the semiconductor business.
AMD experienced quite a roller-coaster ride with its stock in 2018 where at one point it had climbed from under $10 a share to over $32. Things came crashing down to Earth for their stock in the fourth quarter though, where they gave most of these gains back, but not all. AMD is still up 60% year-over-year.
Intel is currently in a sideways pattern, and when we’ve seen the overall market take a significant dip, sideways is good. Intel has also surpassed its trading price in early October when the Q4 market correction started, while the market still has a way to go.
AMD and Intel are fierce competitors in the processor business, which may add even more interest to this showdown, not that we need it.
Chief Editor, MarketReview.com
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