Texas Instruments May Signal Chip Sector Bottom as Semi Stocks Rebound Sharply

TheStreet

Texas Instruments'  (TXN - Get Report) defiant fourth-quarter earnings, which echoed a series of concerns from chip-making peers, may have signaled a bottom for the semiconductor sector as investors look to second half 2019 growth to revive performance for beaten-down stocks.

Texas Instruments, which makes a host of components including control devices for Apple (AAPL - Get Report) iphones and iPads, posted mixed fourth quarter results late Wednesday and guided for only modest growth in the first three months of 2019. Texas Instruments shares rose 6.9% to close at $102.10 on Thursday amid indications that global semiconductor demand will rebound in the second half of the year.

"While macro uncertainty adds risk, we see Texas Instruments and the industry under-shipping end demand for the first time since (the first half of 2016): historically a bullish tactical indicator - and secular drivers still very much intact," Credit Suisse analyst John Pitzer said.

Xilinx Inc. (XLNX - Get Report) , a chipmaker that specializes in the so-called PLD, or programmable logic device segment, also posted record quarterly revenues of $800 million and gave solid current-quarter guidance last night, sending shares 10% higher in pre-market trading Thursday.

Xilinx by far the star of the night.. Just a fantastic q.. reminds me of NVDA a few years ago... $XLNX

— Jim Cramer (@jimcramer) January 24, 2019

U.S. rivals such as Advanced Micro Devices (AMD - Get Report) and Micron Technologies (MU - Get Report) were marked 2.5% and 2.8% higher in pre-market trading respectively, a move that will help support gains for the Philadelphia Semiconductor index, the sector benchmark, which has fallen more than 13% over the past six months. 

In Europe, STMicro shares surged 7.3% higher in Amsterdam trading Thursday after it said it sees sequential quarter revenue growth returning in the second half of this year, following a fourth quarter earnings report that had stronger-than-expected profit margins of around 40%.

And, despite forecasting a 21% decline in first quarter revenues, CEO Jean-Marc Cherry told investors that the Franco-Italian group, a key chip supplier for Tesla Inc. (TSLA - Get Report)  , sees "significant" growth for automotive and power discrete chips in 2019, 

That helped lift European tech stocks to the top of the regional leaderboard Thursday, with the Stoxx Europe 600 Technology index rising 1.43% and peer chipmakers AMS AG (AMSSY) , another key Apple supplier, surging 7.74% and  Germany's Infineon Technologies AG (IFNNY) , the largest chipmaker in Europe, rising 5.5% in Frankfurt to trade at a near three-month high of €19.10 each.

ASML Holding NV (ASML - Get Report)  , which cautioned Wednesday that delayed orders and swelling inventories would hit first quarter sales of its extreme ultraviolet lithography systems, or EUV, machines, which design complex chips used by, sector titans such as Samsung Electronics (SSNLF) , Intel Corp. (INTC - Get Report) and Taiwan Semiconductor (TSM - Get Report)  , rebounded with a 3.4 gain.

In Asia, SK Hynix ended the session in Seoul 5.54% higher after the world's second-biggest memory chipmaker cautioned on weak first quarter sales, but said cloud and DRAM chip demand could rebound firmly in the final six months of the year.

Last week, Taiwan Semiconductor Mfg. Co. Ltd., (TSM - Get Report) the world's biggest contract chipmaker and a lead supplier for Apple Inc. (AAPL - Get Report) iPhones, cautioned that near-term sales would slide the most in 10 years as global smartphone markets continue to slow.

"Moving into first quarter 2019, we anticipate our business will be dampened by the overall weakening of the macroeconomic outlook, mobile product seasonality, and high levels of inventory in the semiconductor supply chain," said CFO Lora Ho, with chairman Mark Liu telling reporters that drop in high-end smartphone demand "came a little bit sudden", adding that the inventory in the supply chain is quite a lot."

Apple's shock sales warning earlier this month, which it pegged to slowing demand in China, was echoed by its main rival Samsung, which said fourth quarter profits would likely come in at around 10.8 trillion Korean won ($9.67 billion), well shy of the market consensus of 13.2 trillion won, with sales falling 11% to 59 trillion won.