Q2 Semiconductor Preview: What to Expect
After a solid start to 2020, semiconductor companies got rocked in March at the onset of the US coronavirus outbreak, posting both year-over-year and quarter-over-quarter losses during Q1. Despite disappointing financials, many of these companies’ stocks have rebounded and even surpassed pre-pandemic highs. Household names including Intel (INTC), AMD (AMD), Qualcomm (QCOM), and more have all rebounded by more than 30% since mid-March lows.
For tech investors, determining short-term swings of these corporations will be difficult. While major market indexes are performing up to par, ambiguity concerning COVID-19 has once again ramped up, and consumer purchasing sentiment is also relatively unknown.
To this end, 5-star Oppenheimer analyst Rick Schafer decided to key in on a number of focal points that serve as indicators about the industry at-large, including purchasing Managers’ Index (PMI), and smartphone deliveries.
US PMI improved in each of the last two months, up from 41.5 in April to 43.1 in May, and up all the way to 52.6 in June. During the same timeframe, global PMI jumped from 39.6 to 47.8. As long as a second wave of COVID does not prove to be more detrimental than the first, companies should be able to maintain adequate production.
Smartphone deliveries will be another key indicator of financial success in the industry. Although this figure has consistently decreased since 2016, 5G chips are now being implemented both by all US cell carriers as well as into phones across the world. This trend is one of the largest catalysts for all semiconductor companies and will be essential for maximizing incomes in the short-term. For FY20, Schafer’s analysis indicates a yearly decline of about 10%, though these losses should be reversed come 2021. Similar trends are expected in regard to both server and PC units.
Semiconductor companies will begin reporting Q2 earnings on July 20. Although “potential COVID-19 second wave and trade tensions present two obvious risks to the fragile recovery” in the industry, Schafer expects “a cautiously optimistic tone from most managements this earnings season.” Until then, Schafer highlights Nvidia (NVDA), Marvell (MRVL), and Monolithic Power (MPWR) as his top picks in the sector.
Credit has to be given where it’s due. Schafer, ranked in the top 1% of all experts on TipRanks, boasts an overall success rate of nearly 77%, specializing in telecom and generating average yearly returns of 19.2%.
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