The Q1 earnings cycle is in full swing, with a number of semiconductor companies slated to report their quarterly numbers over the next few days. The industry serves as a driver, enabler and indicator of technological progress.
According to the Earnings Preview dated Apr 20, technology, along with the finance sector, will bring in more than 40% of the S&P 500 index’s total earnings this year. Per the report, Q1 total earnings for the tech sector are projected to be up 20.9% on 11.5% higher revenues.
We note that the technology sector has been a robust performer for the past year. This sector has been benefiting from the increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software.
We believe the aforementioned emerging trends have provided some much-needed opportunity to semiconductor companies to counter the loss of business due to the declining PC market which still consumes bulk of chips. Notably, according to the latest report of World Semiconductor Trade Statistics (WSTS), semiconductor revenues climbed 20.6% year over year to $408.7 billion in 2017.
It is expected that the semiconductor industry will continue to record growth this year as well, although not as high as 2017, but still at a decent rate. Per the WSTS report, semiconductor revenues are likely to touch $437.3 billion in 2018, representing growth of 7.7%.
The industry is poised to benefit from the rising demand driven by the aforementioned trends in technologies, deployment push of 5G-broadband technology across the globe and President Trump’s pro-business policies, including tax cuts, deregulation and outlays on infrastructure.
However, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment, as well as management’s ability to implement operating and strategic plans.
In other words, a company may perform dismally despite a favorable business environment if it fails to capitalize on the opportunities due to lack of execution.
Notably, our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Let’s see what’s in store for these semiconductor stocks, all of which are expected to release quarterly figures tomorrow.
Advanced Micro Devices, Inc. AMD is slated to report first-quarter 2018 results. The Zacks Consensus Estimate for earnings and revenues is pegged at 9 cents and $1.55 billion, respectively. In the year-ago quarter, the company reported a loss per share of 4 cents and revenues of $984 million. The stock carries a Zacks Rank #3 and has an Earnings ESP of +1.96%.
Increasing adoption of AI techniques and machine-learning tools in industries like gaming, automotive and blockchain is primarily responsible for spurring GPU demand. The company continues to benefit from the robust performance of its product portfolio, comprising Ryzen CPU, EPYC and Radeon Vega GPUs.
Additionally, collaborations with the likes of Baidu BIDU, Amazon AMZN, Tencent, Microsoft and JD.com are other positives for the company. (Read more: Advanced Micro Q1 Earnings: Is a Beat in the Cards?)
Another semiconductor company, Cavium, Inc. CAVM, is scheduled to report first-quarter 2018 results. The company offers software compatible processors that enable functionality in data-center applications, and network connectivity for server and switches. It should be noted that the company has entered into a definitive agreement to get acquired by Marvell Technology Group Ltd. (MRVL).
The stock carries a Zacks Rank of 3 and has an Earnings ESP of +6.04%. The Zacks Consensus Estimate for first-quarter earnings is pegged at 75 cents, indicating a 29.3% year-over-year increase. Revenues are estimated to be around $260 million, reflecting a 13.3% increase from the year-earlier quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s take a sneak peek at Xilinx, Inc. XLNX which is set to report fourth-quarter fiscal 2018 figures. The rising demand for Xilinx’s high-performance, high-density programmable logic devices will likely prove beneficial for the company’s top line. We believe Xilinx is well positioned to tap the opportunities stemming from growth in adoption of AI technologies, 5G connectivity, autonomous vehicles and IoTs.
Also, Xilinx’s ongoing transition from a FPGA provider to an all-programmable devices producer has been helping the company gain market share. Its expanding product portfolio, which includes the Zynq RFSoC platform, is assisting it to counter intense competition from the likes of Intel. Read more: Is a Beat in the Cards for Xilinx in Q4 Earnings?)
The stock carries a Zacks Rank of 2 and has an Earnings ESP of -0.19%. The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at 66 cents, indicating a 15.8% increase on a year-over-year basis. Revenues are estimated to be around $649.5 million, reflecting a 6.6% rise from the year-ago quarter.
Lastly, Silicon Laboratories Inc. SLAB is slated to report first-quarter numbers. The company has an Earnings ESP of 0.00% and carries a Zacks Rank of 3. However, the Zacks Consensus Estimate of 76 cents for the first quarter depicts 20.6% growth from the prior-year quarter. The Consensus Estimate for the company’s revenues is pegged at $199.7 million for the quarter under review, up 11.5% from first-quarter 2017.
Analysts covering the stock believe the company will benefit from increasing demand for its IoT products across the automotive, industrial and consumer end markets. Nevertheless, stiff competition from NXP Semiconductors and Texas Instruments is a major headwind.
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