The fourth-quarter reporting cycle is currently underway, with a significant number o f report s slated to be released this week.
The start to the earnings season has not been very impressive. According to the Earnings Preview as of Jan 18, tech sector earnings are expected to decelerate meaningfully in the fourth quarter, up +3.8%, after back-to-back quarters of very strong growth.
The recent market-wide volatility and concerns have definitely impacted the semiconductor stocks. Moreover, the ongoing trade war between the United States and China has created a volatile environment that is not conducive for investments. Also, volatility in foreign exchange, primarily due to current macro-economic scenario and headwinds in the emerging markets, does not bode well.
However, robust demand for memory chips and other semiconductor products, owing to the rapid adoption of cloud, Internet of Things ("IoT"), autonomous cars, advanced driver assisted systems ("ADAS"), gaming, wearables, drones, virtual reality/augmented reality ("VR/AR") devices, artificial intelligence ("AI"), and cryptocurrencies, is fueling massive growth in the space.
Two semiconductor stocks, namely Texas Instruments TXN and Xilinx XLNX , are scheduled to announce their respective quarterly results tomorrow. Let's have a close look at the factors that will likely impact their results.
Predictions for Texas Instruments
We expect Texas Instruments' fourth-quarter earnings to be driven by strength in several higher-margin and high-growth market areas. The company's expanding exposure in industrial and automotive markets should benefit the upcoming results.
Also, the analog segment should have performed well during the quarter, driven by TI's compelling product line and manufacturing efficiencies that include growing 300-millimeter Analog output.
However, sluggishness in the company's embedded processing unit due to weak performing processors remains a concern and may continue to impact its performance in the to-be-reported quarter. This segment was down 4% year over year in the las t report ed quarter as well, owing to weak performance of processors and sluggishness in the communications equipment market.
Also, rising competition, particularly in auto chips, is currently a major headwind for Texas Instruments.
Texas Instruments Incorporated Price and EPS Surprise
Predictions for Xilinx
We expect strength across majority of the end markets to drive Xilinx's fiscal third-quarter results. Solid performances of Communications businesses, as well as broad-based growth at Data Center, Testing, Measurement, and Emulation (TME) plus Industrial segments are likely to act as catalysts.
Also, the wireless business should continue to benefit from LTE upgrades and the early deployment of 5G, thereby expanding its top-line growth.
However, increasing operating expenses of the company due to higher employee compensation, including profit sharing and sales incentive, might impact profits in the quarter to be reported.
In addition, the full integration of DeePhi acquisition will likely be an overhang on its margins in the quarter. Additionally, intensifying competition from Intel is a negative for Xilinx and may impact its bottom line. (Read: Will End-Markets Uptick Benefit Xilinx Q3 Earnings? )
Xilinx, Inc. Price and EPS Surprise
What Our Model Says
Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP , the chance of beating earnings estimates is high. Zacks Rank #4 or 5 (Sell rated) are best avoided, especially if they have a negative Earnings ESP.
Texas Instruments currently carries a Zacks Rank #4 and its Earnings ESP is 0.00%, which does not indicate a likely positive surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Xilinx currently holds a Zacks Rank #3 and has an Earnings ESP of 0.00%, which also does not indicate a likely positive earnings surprise in the quarter to be reported. However, the company surpassed estimates in three of the trailing four quarters, with average positive surprise of 8.74%. You can see the complete list of today's Zacks #1 Rank stocks here .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.