KeyBanc Previews Q3 Semi Earnings, Downgrades Integrated Device Technology On Renesas Deal

With the onset of the third-quarter reporting season, KeyBanc Capital Markets is previewing earnings from  semiconductor companies in its coverage universe and saw fit to downgrade Integrated Device Technology Inc IDTI.

The Analyst

Analyst John Vinh downgraded Integrated Device from Overweight to Sector Weight.

The Thesis

Easing lead times, increasing order cancellation rates, higher-than-normal inventories and weakening demand across multiple end-markets are likely to create headwinds for broad-based semiconductor names, Vinh said in a Monday note. (See his track record here.) 

Vinh attributes the downgrade of Integrated Device shares to its previously announced acquisition of Japanese chipmaker Renesas. The analyst does not expect any regulatory approval issues due to the fact that the target company is based in Japan, and a competing bid is unlikely, he said. 

The Integrated Device-Renesas deal should close in the first half of 2019, Vinh said. 

KeyBanc forecast Q4 revenue of $235 million and EPS of 46 cents, slightly ahead of consensus estimates that call for revenue of $234 million and EPS of 45 cents.

The Rest Of The Pack 

Xilinx, Inc. XLNX is one of the few positive sector standouts given the near-term positive inflection driven by ZTE, China base stations and hyperscale, Vinh said. The company is likely to see meaningful growth in 2019 thanks to the 5G rollout, he said. 

RF/mobile names such as Qorvo Inc QRVO and Skyworks Solutions Inc SWKS provide more favorable risk-reward due to "less cyclical exposure and ... content gains associated with the latest iPhone cycle," the analyst said. 

Broad-based names such as Analog Devices, Inc. ADI, Cypress Semiconductor Corporation CY, Microchip Technology Inc. MCHP, Maxim Integrated Products Inc. MXIM, NXP Semiconductors NV NXPI, ON Semiconductor Corp ON and Texas Instruments Incorporated TXN have greater exposure to automotive and industrial end markets and China, setting them up for a potentially challenging earnings seasion, according to KeyBanc. 

Integrated Device is scheduled to report earnings Monday, Oct. 29.

The Price Action

Integrated Device shares have gained about 57 percent year-to-date.

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