NXP and Qorvo's Better-Than-Feared Earnings Are Welcome News for Chip Stocks

It hasn't been all doom and gloom for chip stocks this earnings season.

While downbeat reports last week from Texas Instruments (TXN)  and STMicroelectronics (STM) put chip stock investors on edge, NXP Semiconductors (NXPI) , Qorvo (QRVO)  and ON Semiconductor  (ON) have rallied after delivering better-than-feared results and guidance. Though the guidance and commentary shared by the last three firms does generally indicate (as TI and STMicro's reports did) that an industry downturn is afoot, it also lends credence to the view that the downturn isn't a massive one for now.

On Wednesday night, NXP, the world's biggest automotive chipmaker and microcontroller (MCU) supplier, reported above-consensus Q3 results and guided for Q4 revenue of $2.225 billion to $2.375 billion, below a $2.4 billion consensus. A few hours before that, Qorvo, a major RF chipmaker, beat its September quarter estimates while guiding for December quarter revenue of $880 million to $900 million, below a consensus of $900.9 million.

NXP and Qorvo's shares, which have been hit hard amid a recent chip stock selloff, are up over 13% and 6% in Thursday trading, respectively. Meanwhile, ON Semi, a major analog, power management and camera sensor chip supplier, rose 8.8% on Monday after beating Q3 estimates and guiding for Q4 revenue of $1.48 billion to $1.53 billion, above a $1.47 billion consensus.

It's also worth noting that Cypress Semiconductor (CY) , whose product line includes MCUs, memory chips and Wi-Fi/Bluetooth chips, rallied on Friday after beating Q3 estimates and guiding for Q4 revenue of $585 million to $615 million, below a consensus of $643.1 million. The reaction may have partly been in response to news that Cypress plans to offload its NAND flash memory business to a JV that it's forming with South Korean memory giant SK Hynix, but is still encouraging overall.

On its earnings call, NXP -- echoing remarks made by STMicro on its call -- said that it has "seen a slight sequential weakening of order rates through distribution in China," something it attributes to a "heightened sense of caution by our customers on placing orders given the shifting and uncertain landscape in global trade and tariffs."

However, NXP also said it hasn't "experienced any weakness in the typical leading indicators" of a major downturn, such as unusual backlog cancellations or program cancellations. "In summary, while the environment is uncertain, we feel customer demand is okay," said CEO Rick Clemmer.

Qorvo, which is benefiting from RF content share gains for this year's iPhones relative to last year's models, suggested its guidance is the result of "taking a measured view" on demand from Chinese phone makers during its December and March quarters, following strong demand during the last two quarters. The company also reported a near-term slowdown in its Wi-Fi RF business that it partly attributes to delays in rolling out the new 802.11ax standard.

On the other hand, Qorvo still expects its mobile device and infrastructure chip sales to rise sequentially, and -- given the technical demands of 5G RF subsystems -- remains upbeat about the impact of upcoming 5G phone and base station ramps.

ON Semi said on its call that its "overall demand environment remains favorable," in spite of "some weakness" in the Greater China region related to chips going into industrial products and white-label goods. Mizuho analyst Vijay Rakesh, who has had a Buy rating on the company, noted ON is benefiting from electric car, 5G infrastructure and Intel  (INTC) server CPU ramps that serve to increase its chip content relative to prior-generation products, as well as a roughly 70% share of the ADAS image sensor market.

This week has also seen Samsung (SSNLF) , the world's biggest DRAM and NAND maker, suggest that the current memory downturn might not be as bad as feared. Following seasonal weakness in Q1, the Korean tech and electronics giant forecast that DRAM supply and demand will stabilize by Q2 2019, as a ramp for next-gen Intel server CPUs provides a boost.

For an industry that has seen many stocks fall to dirt-cheap valuations thanks to cyclical fears that have been exacerbated by trade worries, the latest batch of earnings reports from chipmakers provide grounds for cautious optimism. A downturn is happening, but for now, it looks like something closer to the moderate slowdown that happened in late 2015 and early 2016, rather than something more troubling.

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