Investors Brace for Big Declines in Q1 Semiconductor Earnings

Worldwide semiconductor revenue outlook

Some of the top chip giants are expected to release their first-quarter earnings next week, and their smaller rivals are slated to follow. The overall semiconductor earnings will likely be pulled down in 2019 due to end-market demand slowdown caused by the US-China trade war. The World Semiconductor Trade Statistics suggest worldwide semiconductor revenue could fall 3% YoY in 2019, as a 14% decline in memory will more than offset low single-digit growth in analog, micro, and logic.

Investors Brace for Big Declines in Q1 Semiconductor Earnings

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Memory

All memory chip suppliers are set to report high double-digit revenue declines on a YoY basis due to falling memory prices. Thus, all suppliers are cutting down their supply to balance it with declining demand. This supply correction will impact the earnings of equipment suppliers Applied Materials (AMAT), KLA Corporation, and Lam Research with all three of them set to report double-digit YoY declines in the first quarter.

Graphics

The graphics card segment is currently going through a crypto bubble burst where the graphics card demand from crypto miners vanished suddenly, leaving a large inventory behind. While there is demand from gamers, it will take a while for them to clear out excess inventory. Advanced Micro Devices’ (AMD) and NVIDIA’s first-quarter earnings are expected to bottom out in the first quarter and start growing sequentially from the second quarter onwards.

Analog and high-performance solutions

While other chipmakers are reporting earnings similar to their peers, there is a difference in the earnings of analog chipmakers, as each one has a different level of exposure to different markets. Those with high exposure to 5G (fifth generation) stand to benefit, while those with high exposure to automotive stand to lose.

Analog Devices (ADI) benefitted from 5G exposure and is therefore expected to report YoY growth in the first quarter, whereas NXP Semiconductors’ (NXPI) position as leading auto chip supplier is proving to be a headwind in the difficult macroeconomic environment.

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