Big Chip Q1 Earnings Preview: A Focus On Industry Downturn, Product Delays, Competitive Dynamics, New Tech

Corporate profit expectations for the first quarter are muted, with most analysts bracing for S&P 500 profits to decline for the first time since the second quarter of 2016.

Semiconductor and semiconductor equipment makers could see their profit drop 23 percent year-over-year, according to FactSet.

After ending 2018 in the red, the iShares S&P NA Tec. Semi. Idx. Fd. SOXX added over 21 percent in the first quarter.

The cyclical downturn in semiconductors will last through the remainder of 2019 and potentially into 2020, Nomura Instinet analyst David Wong said in a note.

With new technologies such as AI, autonomous driving, 5G, IoT and the continued buildout of global data center infrastructure as catalysts, the longer-term picture looks attractive, the analyst said. 

As the big three chipmakers prepare to roll out their quarterly earnings scorecards, here's what to expect from them:

Intel Corporation INTC

• Earnings Date: Thursday, April 25 after the close
• EPS Estimate: 87 cents, unchanged from a year ago
• Revenue Estimate: $16.02 billion vs. $16.07 billion last year 
• Stock Performance (Q1): +15.16 percent

Intel may report an earnings beat, given the muted expectations. But investors may be left with several questions concerning the near- and medium-term outlook.

After serving as interim CEO for seven months, Robert Swan assumed the responsibility on a permanent basis during the quarter. The company also named QUALCOMM, Inc. QCOM executive George Davis as its CFO.

During the quarter, Intel announced its intention to exit the 5G smartphone modem business, ceding the runway to Qualcomm. This followed Qualcomm and Apple Inc. AAPL reaching a settlement in a legal dispute between them.

Dropping the business won't likely affect Intel's 2019 numbers, but will have positive impact on its longer-term revenue and margin picture, KeyBanc Capital Market's Weston Twigg said in a recent note.

Intel has also been plagued by a delay in its new-gen chips made with the 10nm manufacturing process.

Additional 10nm delays would pose a risk to current estimates, the analyst said. 

That said, analysts are optimistic about Intel's longer-term picture given its leadership in AI and autonomous driving.

See Also: With Semiconductor Demand Uncertain, KeyBanc Presents Stock Ideas

Advanced Micro Devices, Inc. AMD

• Earnings Date: Tuesday, April 30 after the close
• EPS Estimate: 5 cents vs. 11 cents last year
• Revenue Estimate: $1.26 billion vs. $1.65 billion last year
• Stock Performance (Q1): +38.25 percent

Thanks to product momentum, AMD is better-positioned than rival Intel, according to most analysts. AMD is likely to have snatched share from Intel in the CPU market.

The Sunnyvale, California-based company likely gained share in notebooks, even as its desktop share remained flat ahead of the planned launch of its 7nm chips later this year, Seeking Alpha reported, citing Susquehanna analyst Christopher Noland.

RBC Capital Markets' Mitch Steves said the company is likely to see gains in notebook market share as early as the second quarter and gains in desktop market share in the third quarter.

The analyst forecast higher ASPs and gross margins, resulting in moderately higher EPS for AMD, particularly in the second half of 2019.

Steves recommends buying the stock on down days, or when AMD shares dip as much as 5 percent. 

NVIDIA Corporation NVDA

• Earnings Date: Thursday, May 16
• EPS Estimate: 79 cents vs. $2.05 last year
• Revenue Estimate: $2.2 billion vs. $3.21 billion
• Stock Performance (Q1): +34.64 percent

Nvidia shares suffered a backlash after the company reported a sharp decline in fourth-quarter revenue in mid-February, with the chipmaker blaming the predicament on a crash in cryptocurrency mining demand and deteriorating end-market conditions. Nvidia  had previously lowered its guidance in January.

Yet Nvidia's exposure to multiple segments such as data center and automotive markets could be its saving grace, according to analysts. 

The company's strong product positioning — coupled with the recent acquisition of Mellanox — should help Nvidia realize "significant" margin expansion and rapid earnings growth, Piper Jaffray said in a recent note.