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Morgan Stanley Previews Semi Earnings, Expects Strong Nvidia Results Despite Crypto Concerns

Morgan Stanley Previews Semi Earnings, Expects Strong Nvidia Results Despite Crypto Concerns
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Notwithstanding stellar results from semiconductor companies, sentiment toward the sector has yet to see an uplift. The Philadelphia Semiconductor Index has largely been flat since the start of the tech reporting season. Against this backdrop, Morgan Stanley previewed the upcoming week's semiconductor earnings.

The Analyst

Morgan Stanley's Joseph Moore previewed earnings reports from MPINJ Inc (NASDAQ: PI), Microchip Technology Inc. (NASDAQ: MCHP) and NVIDIA Corporation (NASDAQ: NVDA). Morgan Stanley has the following ratings on the companies:

  • IMPINJ: Equal-weight
  • Microchip: Equal-weight
  • Nvidia: Overweight/$258 price target

IMPINJ's Q1 A Test Of Whether Business Has Troughed

IMPINJ, which is scheduled to report is first-quarter results after the market close Monday, May 7, is likely to report fairly in-line sales with earnings falling slightly below estimates, Moore said in a Friday note. (See the analyst's track record here.) 

"This quarter will be a test of whether Impinj's business has finally bottomed out and can grow sequentially from here in the back half of the year," the analyst said.

Moore said he expects IMPINJ's operating expenditure to grow 10 percent in 2018 — with a 20-percent drop in sales. Unless the business recovers, the analyst said sharper cuts in expenditures will be required.

For IMPINJ's earnings call, Moore said he'll focus on updates on the CFO search process, progress with customers and inventory at partners, RFID adoption by newer verticals such as travel and the adoption of higher-margin connectivity and software solutions.

Limited EPS Upside Likely for Microchip

Although Microchip indicated at its March 1 analyst day an improvement in Q1 bookings and book-to-bill ratio, Moore projects limited EPS upside as the company approaches its targeted gross and operating margins.

The analyst estimates Q1 revenue will drop 0.9 percent sequentially to $985.5 million and EPS of $1.35, above the consensus estimates of $1.34 in EPS and revenue of $984.8 million. For the June quarter, the analyst is above-consensus on revenues but in-line on EPS.

On the earnings call, investors should watch for Microchip's lead times, distribution channel inventory, an update on the  Microsemi Corporation (NASDAQ: MSCC) regulatory approval process and cross-selling efforts, Moore said. 

Microchip's Q1 report is set for release after the close Tuesday, May 8.

Expect Strong Gaming, Datacenter Performance From Nvidia

Nvidia is scheduled to report its Q1 results after the close Wednesday, May 9. Despite concerns that crypto-related demand is leveling off, Moore said Nvidia can easily absorb the impact.

The belief is based on strong pent-up demand from gamers given recent shortages and the beginning of a new product cycle at about the quarter's end, the analyst said.

" ... Expect strong gaming demand, a new gaming product cycle and continued data center upside to drive a stronger July quarter despite cryptocurrency deceleration," Moore said. 

Morgan Stanley's July quarter revenue guidance is 6 percent above the consensus. 

The Price Action

IMPINJ shares have lost 44 percent year-to-date compared to a more modest 1.6-percent drop by Microchip. Nvidia has added 20.5 percent.

Related Links:

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Latest Ratings for NVDA

Dec 2018RBC CapitalMaintainsOutperformOutperform
Nov 2018Credit SuisseInitiates Coverage OnOutperform
Nov 2018Exane BNP ParibasDowngradesNeutralUnderperform

View More Analyst Ratings for NVDA
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