Bluefin On Semi Earnings: Q3 A 'Modest Beat,' Q4 Tracking Ahead Of Expectations

Semiconductor companies largely announced a slight earnings beat for Q3 and projected in-line guidance following a string of disappointing growth outlooks, while Q4 seems to be tracking modestly ahead of expectations, Bluefin’s Paul Peterson said in a report.

Peterson mentioned business seemed “pretty good” in the segment, and the implications of the recent Apple Inc. AAPL iPhone cuts on the semiconductor supply chain are not as bad as last year.

Q3 Figures And Q4 Expectations

The top 30 broad-based suppliers announced their Q3 revenue 100 bps (basis points) ahead of consensus estimates. The Q4 guidance was broadly in line with expectations. “iPhone 7 suppliers provided the biggest upside to consensus estimates,” Peterson wrote.

Management commentary indicated that semiconductor market demand was relatively healthy.

While North America and Europe markets were exhibiting seasonal weakness in Q4, Asia was tracking slightly ahead of expectations, backed by strength in China. The analyst added, “We continue to believe that China is the primary source of upside demand, thanks in large part to the government’s aggressive monetary and fiscal policy.”

Implications Of iPhone 7 Cuts

The recent iPhone supply chain cuts had been driven by softening demand for the iPhone 7 model.

Although these cuts would be a headwind in the March quarter for semiconductor suppliers with iPhone exposure, the cuts are of a significantly lower magnitude than the iPhone 6s reductions from December 2015 through April 2016, Peterson noted.

In Q1, 2016 iPhone builds declined by 44 percent sequentially, significantly higher than the 34 percent reduction forecast for Q1 2017. “Last year the supply chain inventory glut drove Q1:16 builds 7 million below shipments; at this point we don’t see that happening in Q1:17,” the analyst mentioned.