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Big Chip Earnings Preview: Intel, AMD Set To Report Amid Changing Competitive Landscape, Cycle Risk

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Big Chip Earnings Preview: Intel, AMD Set To Report Amid Changing Competitive Landscape, Cycle Risk

The tech earnings news flow gets underway this week with chipmakers Texas Instruments Incorporated (NASDAQ: TXN) and Intel Corporation (NASDAQ: INTC) scheduled to report. Activity is expected to pick up pace in the unfolding week.

The broader IT sector is expected to report year-over-year earnings growth of 3.4 percent in the fourth quarter, according to Factset's estimates. This is a substantial reduction from the 6.8-percent growth estimated at the end of December and trails the 10.6-percent earnings growth now projected for S&P 500 companies.

After losing about 6.5 percent in 2018, the iShares S&P NA Tec. Semi. Idx. Fd. (NASDAQ: SOXX) has gained about 6 percent year-to-date.

The earnings reports of processor chipmakers due over the next few weeks will determine the sustainability of the ongoing momentum.

Analysts see cycle risk as a pan-industry concern, while slowing node transitions and changing competitive dynamics are also seen to pose threats. Semiconductors are heading toward a downcycle that started in early 2018 when NAND prices started weakening, said Nomura Instinet analyst Romit Shah. This was followed by weakness in DRAM pricing.

Faltering end market demand — especially in the automotive and industrial sectors — channel inventory glut and weak pricing have also been hurting chipmakers.

Intel

Earnings Date: Thursday, Jan. 24 after the market close. (Editor's note: Intel posted a sales and guidance miss.)

EPS Estimate: $1.22 vs. $1.08 a year ago. 

Revenue Estimate: $19.01 billion vs. $17.05 billion last year.

Stock Performance (quarter-to-date): +2.7 percent.

Incidentally, Intel's Q4 EPS estimate has been upwardly revised from the $1.09 per share estimated 90 days back. The company reported a beat-and-raise quarter in Q3, thanks to 22-percent growth in its data centric-businesses.

"With demand running ahead of capacity in both Q3 and Q4, it seems certain backlog and factory utilization will keep revenue and margins elevated in [the first half of 2019]," Charter Equity Research analyst Edward Snyder said in a late October note.

On the product side, Intel launched its ninth-generation Intel Core processors meant for use in ultra-portable laptops and the Lakefield brand of hybrid CPU architecture. It also began shipping Cascade Lake Xenon scalable processors. These product offerings are expected to enhance the performance of Intel's data center and cloud computing businesses.

Intel is still without a permanent CEO following the resignation of Brian Krzanich in late June on the pretext of a relationship with an employee. Investors may be watching for an update on a CEO appointment, products and the delay in Intel's 10nm chips.

AMD

Earnings Date: Tuesday, Jan. 29 after the close.

EPS Estimate: 8 cents, identical to the year-ago quarter. 

Revenue Estimate: $1.45 billion vs. $1.48 billion last year.

Stock Performance (quarter-to-date): -36 percent. 

Advanced Micro Devices, Inc. (NASDAQ: AMD) shares, which fell sharply following its Q3 earnings release, are expected to exceed expectations this quarter, primarily due to rival Intel's supply shortages.

AMD had guided Q4 revenues to $1.45 billion, plus or minus $50 million, which trailed consensus estimates.

Over the past 90 days, the consensus EPS estimate for the company has been trimmed by 11 cents.

AMD launched its latest high-end Radeon VII graphics card, with its first 7nm graphics chip, at CES 2019.

Nvidia

Earnings Date: Not confirmed. 

EPS Estimate: $1.40 vs. $1.78 a year ago. 

Revenue Estimate: $2.7 billion vs. $2.91 billion last year.

Stock Performance (quarter-to-date): -47 percent. 

NVIDIA Corporation (NASDAQ: NVDA) reported below-consensus revenue in November for its third quarter and issued a bleak revenue forecast for Q4. The Q3 weakness was partly attributable to a decline in crypto-related GPU revenues for the second quarter in a row.

With a slew of product announcements at CES, including new Turing GPUs and a low-cost Turning-based RTX2060 graphics card, the company is likely to embark on the road to recovery in 2019.

The consensus EPS estimate for Nvidia has also come down from the $1.84 projected 90 days ago.

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