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Estimize: Declining semiconductor sales could turn around soon

Semiconductor chips are arranged for a photograph on a production line.
Dario Pignatelli | Bloomberg | Getty Images
Semiconductor chips are arranged for a photograph on a production line.

This week started off the earnings parade for the semiconductor names, beginning with Intel on Tuesday, and will close out with Advanced Micro Devices on Thursday, with another 10 companies in between.

Lately, earnings have been largely mixed for companies in this space, creating a noticeable divide between the haves and the have-nots. Major players like Ambarella and Nvidia continually crush expectations while others like AMD find it difficult to stimulate growth. Still, overall worldwide semiconductor sales are steadily declining, largely due to the slowdown in China, currency headwinds and weak PC market.

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Meanwhile, Apple's meager sales growth last quarter is expected to continue until the release of the iPhone 7, thereby forcing suppliers to scale back production. The biggest names impacted by this include Cirrus Logic and Qorvo, which have already posted weaker guidance on first quarter earnings.

Fortunately, Intel kicked things off earlier this week with first quarter earnings that beat expectations, possibly setting a favorable tone for semiconductors this season. The company reported earnings per share of $0.54 on $13.80 billion in sales. Intel easily topped the Estimize consensus by 3 cents per share but fell short on revenue by $200 million.

The quarter featured sequential declines in key metrics including client computing and data centers. However, on a year over year basis, revenue in all its core units, from internet of things to security, were up. This didn't prevent downward revisions for the full-year outlook, which is calling for mid-to-high single-digit revenue growth primarily driven by its rapidly expanding sectors in IoT, big data and cloud computing.


The most important number wasn't found in the earnings release, but announced during the analyst call. The company declared plans to cut 12,000 jobs, or 11 percent of its workforce, by 2017, in a strategic shift toward high profit areas like cloud computing. Shares fell nearly 3 percent on this news Tuesday but have since recovered.

Next up, AMD is scheduled to report first quarter earnings this Thursday after the market closes. AMD has been on the wrong side of earnings that have steadily declined over the last two fiscal years.

Current estimates position the semiconductor to miss expectations for the seventh of the last eight reported quarters.

Analysts are expecting per share estimates of -$0.13 on $823.88 million in revenue, according to the Estimize consensus data. Since the last report, per share estimates have been cut 12 percent with sales falling 5 percent. Compared with a year earlier, this predicts a 40 percent decline on the bottom line accompanied by a 20 percent drop in revenue.

Unfortunately, it's been the same story for AMD. Its core business as a CPU and GPU provider continues to relinquish market share to industry leaders Intel and Nvidia. Without any new innovations and mounting debt and losses, this quarter is setting up to be another dud.

Even though most experts fully expect another loss, AMD is gaining traction in the gaming industry. Both Microsoft's Xbox One and Sony's PlayStation 4 use AMD processors with no sign of jumping ship.

Over the next few weeks, we will get results from additional semiconductors including Ambarella, Nvidia and Cirrus. As more reports pile up, we will soon know whether conditions in China, exchange rate volatility and waning PC demand have alleviated.

Unfortunately, early indications suggest that past trends should continue, and those companies not pivoting away from legacy businesses in favor of high growth segments will continue to lose.

How do you think these names will report this week? Be included in the Estimize consensus by contributing your estimates here!