Analyst Pares Profit Estimates for 5G-Chip Makers Due to Coronavirus Concern -- ICYMI

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As U.S. stocks broadly continue to slump, an analyst lowered estimates for a handful of chip suppliers for 5G devices.

The S&P 500 bounced as much as 1.5% Wednesday morning – and then it fell into the red.

The market’s concern about the global economic hurt the coronavirus might deliver is widespread. A key individual focus of that concern is production of 5G devices and particularly the chips that power them.

To this point Needham & Co. analyst Rajvindra Gill said the firm is “reducing our estimates across the microcontroller units/analog names along with our smartphone-supply-chain companies.”

And on Tuesday, Cowen analyst Krish Sankar cut his first-quarter iPhone production estimate for Apple AAPL to 37 million from 46 million and his shipments forecast to 33 million from 46 million.

And “even with this 9 million reduction to our calendar-year first-quarter build forecast, our field work suggests there is still some risk of additional downside,” Sankar wrote in a note.

A critical potential offset: Many analysts expect consumers who stay home early in the year to come out to buy hardware later in the year, leaving their estimates of Apple’s 2020 revenue and earnings little changed.

One company Gill covers is NXP NXPI. "While the smartphone segment will be hit most directly from lower consumer demand in China, we also believe MCU/analog suppliers could experience customer-order pushouts into the second quarter across multiple end markets,” Gill said.

He did not model a rebound of chip sales in second-half 2020, “which may prove conservative.” He lowered his full-year revenue and earnings-per-share estimates for NXP. Those are down to $9.05 billion from $9.3 billion and $7.70 from $8.15, respectively.

Gill said most of the revenue impact stems from obliterated demand from end markets in China, as consumers stay home instead of buying devices. The impact is less weighted towards manufacturing delays for NXP. The company sees 36% of revenue from China, according to FactSet consensus estimates.

Gill's price target remains $160 a share because he values the company on a multiple of 2021 earnings, which are not yet affected by the virus and aren’t expected to be affected.

NXP shares are down 7% in 2020 through the regular-session close Wednesday.

Skyworks Solutions SKYW, Gill says, sees roughly 56% of its revenue from Apple.

Gill lowered his 2020 revenue estimates by 5% for each of the first two quarters of the calendar year. Revenue for quarters one and two, Gill thinks, is likely to come in at $770 million and $810 million. He didn’t specify his full-year 2020 revenue estimate, but that could prove little changed if Apple does indeed recover lost sales later in the year.

Gill affirmed his $145 price target on the stock, which has fallen 14% on the year to $104 a share.

He is lowering his first- and second-quarter estimates by 4% and 7%, respectively. For the full year, “we believe it is prudent to trim estimates,” Gill said. He trimmed that revenue estimate to $3.24 billion from $3.27 billion and his EPS estimate to $6.35 from $6.85. His price target, reflecting 12.1 times his calendar year 2021 EPS estimate, is unchanged at $150.

Qorvo, like most 5G-exposed chipmakers, is trading at a richer valuation than it usually does. Qorvo shares change hands at $96, 14 times next year’s earnings, compared with its five-year average multiple of 12. The 5G cycle, when it picks up, is expected to drive strong sales growth for several years. 

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