Chip stocks outperformed the broader market Wednesday and were on track for a sixth straight record high following a wave of earnings beats and outlooks that hinted the sector may be creeping out of inventory oversupply issues that have dogged it for several months.
The PHLX Semiconductor Index SOX, +0.94% rose 1.1% to 1,590.98 at last check Wednesday, after being up nearly 2% earlier, compared with a flat S&P 500 index SPX, -0.24% and Nasdaq Composite Index COMP, -0.18% The SOX index is on track for its sixth record high in a row if it closes above 1,574.05 Wednesday. The index is up 7% since its recent run started on April 16 and up 38% for the year, compared with a 17% year-to-date rise on the S&P 500 and a 22% gain on the Nasdaq.
Texas Instruments Inc. TXN, +1.21% shares were up 1.3% after the chip maker’s earnings topped Wall Street estimates but forecast second-quarter earnings and revenue ranges that bookended the Street consensus, but it was the company’s 5G chip results that interested analysts the most.
Mizuho analyst Vijay Rakesh, who has a neutral rating and raised his price target to $110 from $103, said Texas Instruments results underscored that chip sales for auto and industrial uses will be weak in the June-ending quarter and that the company was “not seeing a pickup in most markets except for 5G.”
5G chips figured in Apple Inc. AAPL, -0.08% and Qualcomm Inc.’s QCOM, -0.92% settlement, which prompted Intel Corp. INTC, -0.03% to announce it was exiting the 5G smartphone modem market soon after.
Jefferies analyst Mark Lipacis, who has a buy rating on Texas Instruments and a $137 price target, said he sees “that supply chain inventories are clearing out and semis are entering a sustained period (20+ months) of upward revisions,” and called Texas Instruments’ second-quarter forecast conservative and beatable.
In his nod to the 5G market, Lipacis underscored that most of the first-quarter upside for Texas Instruments communication equipment orders was from China, and pointed to phone maker Huawei Technologies Co.’s earnings as a big driver.
Susquehanna Financial Group analyst Christopher Rolland, who has a positive rating on Texas Instruments and raised his price target to $135 from $112, called the 5G situation at Texas Instruments a “conundrum.”
“While results/guidance were likely ‘better than feared’ given the constant stream of disappointing intra-quarter data points, management suggested the ‘lumpy’ communications market helped results greatly,” Rolland said.
“Indeed, management called out ~30% YOY growth in Comms, owing to 5G strength (after +20% YOY growth last quarter),” the Susquehanna analyst said. “However, investors are likely to attribute less value to this more temporary revenue stream and extrapolate weaker results for TI’s broader businesses; hence, the ‘5G conundrum.’”
Meanwhile, shares of Silicon Laboratories Inc. SLAB, +14.03% rallied after maker of analog-intensive and mixed-signal integrated circuits reported earnings and an outlook that topped Street estimates. Shares were up 14% at $107.02 at last check.
Early Wednesday, Silicon Laboratories reported adjusted first-quarter earnings of 59 cents a share on revenue of $188.1 million, while analysts polled by FactSet were looking for 47 cents a share on revenue of $188 million. The company forecast second-quarter earnings of 70 cents to 80 cents a share on revenue of $202 million to $212 million, compared with the consensus of 63 cents a share on revenue of $201.9 million from analysts.
“We exited 2018 with strong design win momentum and leading positions in key secular growth markets,” said Tyson Tuttle, chief executive of Silicon Laboratories, in a statement. “Despite macro turbulence, Q1 bookings were robust, signaling a Q2 rebound. We believe we are well-positioned to outperform the market.”
Similarly, shares of Teradyne Inc. TER, +8.77% surged after the testing and industrial automation equipment maker also handed in an earnings beat. The stock was up nearly 10% at $48.86 at last check.
Teradyne reported adjusted first-quarter earnings of 54 cents a share on revenue of $494.1 million, while the Street had forecast earnings of 44 cents a share on revenue of $476.2 million. Teradyne forecast adjusted second-quarter earnings of 56 cents to 65 cents a share on revenue of $520 million to $550 million. Analysts expect 58 cents a share on revenue of $538.3 million.
Other better-than-average performing chip stocks that were up 2% or more included Advanced Micro Devices Inc. AMD, +1.68% Analog Devices Inc. ADI, +3.45% Applied Materials Inc. AMAT, +2.09% Cypress Semiconductor Corp. CY, +2.56% KLA-Tencor Corp. KLAC, +2.63% ON Semiconductor Corp. ON, +2.61% and Xilinx Inc. XLNX, +1.94%
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