Chip stocks close at sixth straight record high on strong earnings, 5G outlook

Chip stocks close at sixth straight record high on strong earnings, 5G outlook

Texas Instruments, Silicon Laboratories, Teradyne all beat Street

Chip stocks outperformed the broader market Wednesday and closed at 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, +0.95% rose 1% to close at a record 1,589.02 on Wednesday, after being up nearly 2% earlier, compared with slight losses for the S&P 500 index SPX, -0.22% and Nasdaq Composite COMP, -0.23% That gave the SOX index its sixth record-high close in a row. 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.

After Wednesday’s close, Xilinx Inc. XLNX, +1.87% shares dropped 12% after hours, following a 1.9% rise to close at $139.72, even as results topped Wall Street estimates. Xilinx shares have rallied 118% over the past 12 months.

On the other hand, shares of Lam Research Corp. LRCX, +0.34% rose 5% after hours, following a 0.3% rise to close at $195.44, after a big beat on earnings.

Texas Instruments Inc. TXN, +1.76% shares closed up 1.8% at $118.43 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, -0.15% and Qualcomm Inc.’s QCOM, +0.13% recent settlement, which prompted Intel Corp. INTC, -0.10% 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, +17.56% rallied after the maker of analog-intensive and mixed-signal integrated circuits reported earnings and an outlook that topped Street estimates. Shares closed up 18% at $110.04.

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, +7.63% surged 7.6% to close at $47.99 after the testing and industrial automation-equipment maker also handed in an earnings beat.

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 closed up 1.5% or more included Advanced Micro Devices Inc. AMD, +1.75% , Analog Devices Inc. ADI, +2.79% , Cypress Semiconductor Corp. CY, +2.09% , KLA-Tencor Corp. KLAC, +2.01% and ON Semiconductor Corp. ON, +1.86%

Thursday after the bell, Intel Corp. is scheduled to report its quarterly earning’s with AMD scheduled to report next week on April 30.

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