Is Intel leading the way out of the semiconductor slump?
What happened
Semiconductor stocks are ending the week on a high note as shares of chip giant Intel (INTC 6.60%) gain 5.8% through 10:35 a.m. Friday after beating earnings last night.
More than just good news for Intel, the results are also helping to pull up shares of both Silicon Motion (SIMO 13.31%) — up 14.1% despite missing earnings — and Qualcomm (QCOM 2.88%) — up 2.7% even though it didn’t report earnings at all.
So what
Intel reported $0.13 per share in earnings, “adjusted” for what Intel considers one-time items, on sales of $12.9 billion. These numbers exceeded Wall Street’s prediction that Intel would report an adjusted loss of $0.03 per share, and that $12.9 billion in sales was a heck of a lot better than the $11 billion in sales that analysts had forecast. What’s more, when calculated according to generally accepted accounting principles (GAAP), Intel’s results were…actually even better.
GAAP profits for the quarter were a solid $0.35, a vast improvement over last year’s Q2 loss of $0.11 per share.
Not all of Intel’s news was great, of course. Quarterly sales that exceeded estimates still declined 15% year over year (YOY). $0.35 per share in quarterly profits, even if extrapolated across a year’s four full quarters, works out to about $1.40 per share in annualized profits, which would value Intel stock at more than 26 times earnings — i.e., not cheap. Furthermore, Intel guided investors to expect weaker earnings in Q3 — not $0.35 per share, but only about $0.04 per share. On the plus side, Intel also said Q3 sales will probably be higher than Q2 sales, ranging from $12.9 billion to as high as $13.9 billion.
So, long story short, things still seem to be looking up for Intel.
Turning now to semiconductor chip designer Silicon Motion, the story here is arguably even better (but also arguably a bit worse). Silicon Motion reported $0.38 in adjusted profits per American Depositary Share in Q2 2023, on sales of $140.4 million. The adjusted profits number was worse than what Wall Street expected ($0.48 per share), and Silicon Motion’s actual GAAP profit was even lower — only $0.33 per share. On the plus side, Silicon Motion’s sales came in ahead of Wall Street’s expectation ($133.2 million) — despite falling 44% YOY.
Now what
Yet investors seem to be keying in on the fact that while Silicon Motion’s sales fell steeply YOY — indeed, fell even faster than Intel’s sales did — at least the company’s sales perked up 13% when compared to Q1 2023. Company CEO Wallace Kou observed that “inventory levels at our customers and at PC and handset OEMs continue to come down,” helping to remove a headwind to future sales growth. And indeed, Kou is now predicting “a market recovery toward the end of this year.”
As a result, even with Silicon Motion reporting a 44% decline in sales for Q2, and GAAP earnings down nearly 79% (!), investors are reading between the lines and seeing the potential for a quick turnaround in Silicon Motion’s fortunes later this year. Read in the context of Intel’s earnings beat, and of Intel’s forecast for continued sequential growth in sales in Q3, this is reinforcing the impression that the global chips industry is poised for a comeback.
Will it happen? Tune back in for our next clue on the health of this industry when Qualcomm — today’s most modest gainer — reports its own fiscal Q3 results on Aug. 2, 2023. According to Yahoo! Finance estimates, the results won’t look great — sales down perhaps 30% and profits falling 45% to $1.63.
But if Silicon Motion stock is any guide, even terrible results could be taken as good news if Qualcomm gives good enough guidance.
