Why Semiconductor Stocks Could Be Heading For Tough Earnings Season

Chipmakers are facing high inventories, which could lead to a tough earnings season for semiconductor stocks.

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May 10, 2023 • 1 min read

A Deutsche Bank analyst warns investors in semiconductor stocks to prepare for the first quarter earnings report that will begin with Intel (INTC). He says that chipmakers are still struggling with high inventories, which could slow down a recovery.

Analyst Ross Seymore of Deutsche Bank noted that semiconductor stocks performed better than the market in the quarter ending March. The PHLX Semiconductor Sector Index (SOX), which includes 30 companies, also grew by 20%.

A slew of data, including shipments, inventories, and prices, showed that the semiconductor industry is still experiencing a decline.

Seymore wrote in a Wednesday note to clients that the main message heading into Q1 earnings is "patience".

He said that the SOX Index "has priced in an 'V-shaped' fundamental recovery that could prove difficult to deliver because of high levels in inventory and macroeconomic headwinds that continue (inflation rates, weak demand throughout the economy).

Seymore continued: "The net outcome for this earnings season will be mediocre guides/reports, with little significant change in estimates. However, the risk remains slightly on the downside."

INTC's earnings are due on April 27. Qualcomm (QCOM), meanwhile, reports its earnings on May 3.

Seymore's top choices include Qualcomm (QCOM), Broadcom (AVGO), Marvell Technology(MRVL)and MaxLinear (MXL).

Semiconductor shares are among the most volatile. Micron Technology, a chipmaker that makes memory devices, rebounded Monday as a result of production cuts.

The analyst at Deutsche Bank added, "We expect revenue growth to slow down in the first half of 2023. We anticipate that the industry will be impacted by inventory reduction and weak demand during the first half of 2023." "For 2Q, we expect mixed guidance."

Reinhardt Krause is on Twitter @URL. Follow him for the latest updates on 5G wireless technology, artificial intelligence and cybersecurity.