Zinger Key Points
- Semiconductor companies have been through challenging times in the fourth quarter.
- With the repricing that has already occurred for chip stocks, investors should consider taking a look at these stocks, JPMorgan says.
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Tech earnings begin to drop this week, with a couple of big-name chip stocks and a few semiconductor-equipment manufacturers among the early reporters from the sector.
What Happened: China headwinds associated with the slowing economy and reopening portend a choppy chip earnings season ahead, KeyBanc Capital Markets analyst John Vinh said in a note.
JPMorgan analysts say the semiconductor industry has always had structural supports in place but cyclical forces challenged it in 2022. Chipmakers had to contend with the most aggressive Fed rate hiking cycle in decades and bloated inventories, China’s zero-COVID-19 policy and fragile U.S.-China relations.
See Also: Best Semiconductor Stocks
The first glimpse into how the fourth-quarter earnings season would shape up for chip stocks could be gleaned from the quarterly reports of Intel Corp. INTC and Texas Instruments Inc. TXN.
Texas Instruments Likely To Guide Below Consensus: Texas Instruments is due to report its fourth-quarter results on Tuesday after the market close.
Analysts, on average, expect the company to report earnings per share of $1.98, down from $2.27 in the year-ago period. The top line may have slipped 4.40% to $4.62 billion.
The company announced last week the promotion of company insider Haviv Ilan as CEO, effective April. 1, with the incumbent Rich Templeton transitioning to the role of chairman.
KeyBanc’s Vinh expects Texas Instruments to report in-line quarterly results but lower the guidance for the first quarter. The current consensus expects the company to guide to a 10% year-over-year revenue decline to $4.91 billion.
The high exposure to the consumer segment and Texas Instruments' decision not to increase pricing versus analog peers amid the backdrop of softening demand across most end markets would hurt the company, the firm said. China’s reopening also poses a near-term incremental headwind, given the expectation for a spike in infections and mortality rates, it added.
KeyBanc has an Overweight rating and $173 price target for Texas Instruments shares.
Oppenheimer’s Rick Schafer noted that the slowdown seen in personal electronics last summer has spread to the industrials sector beginning in the fourth quarter. The analyst, however, expects the company to materially benefit from the U.S. CHIPS funding.
Schafer has an Overweight rating and $185 price target.
Intel Analysts Downbeat On Q4, Guidance: Santa Clara, California-based Intel is scheduled to report on Thursday after the close. The consensus estimates call for EPS of $0.20 and revenue of $14.48 billion, marking a drop from the year-ago’s $1.09 and $19.53 billion, respectively.
KeyBanc’s Vinh expects challenging results and guidance from Intel, dragged down by weaker PC demand and softening server outlook. Canalys survey showed that global PC shipments fell 28.7% in the fourth quarter to 65.44 million units, marking a low point for the year.
The analyst also expects muted data center demand, held down by lowered cloud spending at major U.S. cloud providers such as Amazon Inc.’s AMZN AWS and Alphabet Inc.’s GOOGL GOOG Google Cloud, weakening China cloud and softer enterprise demand.
KeyBanc expects the company to report in line to slightly lower fourth-quarter results and guide first-quarter results below the consensus.
KeyBanc rates Intel a Sector Weight.
Credit Suisse’s Chris Caso echoed the sentiment and said he expects Intel’s first-quarter guidance to be below the consensus estimate, primarily due to data center weakness.
Despite the uninspiring near term, the semiconductor industry could chart a comeback in 2023. JPMorgan analysts believe the worst is over for the $600 billion semiconductor industry as the stocks have already priced in an economic recession. "Given the repricing that has already occurred and the prospective returns that could be supported by friendly government policy, we think you should consider taking a close look at semiconductor stocks," the firm said.
Price Action: The iShares Semiconductor ETF SOXX ended Friday's session up 3.13% to $385.53, according to Benzinga Pro data.
Read Next: Sapphire Rapids-Based New Chips Aim To Regain Lost Market Share, Intel Executive Say
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