Semiconductors Strong as Other Techs Teeter: Earnings This Week

The last week of earnings has brought more optimism toward semiconductors but skepticism about other major technology stocks.

Skyworks Solutions (SWKS), Microchip Technology (MCHP), On Semiconductor (ON) and Cypress Semiconductor (CY) all pushed higher after releasing their quarterly results. Some beat estimates and others merely came in line, but they all gained on hopes that the worst of the industry’s slowdown has passed.

MCHP is a diversified chip maker that’s often viewed as a bellwether for the space. Its CEO, Stephen Sanghi said on his conference call, “barring any material negative development on the trade front, we see the March 2019 quarter to mark the bottom of the cycle.”

One reason seems to be hopes for the rollout of 5G networks. The new systems will “fuel a broad array of markets and applications, ranging from industrial IoT (Internet of things), automotive, machine to machine, healthcare, smart cities as well as artificial intelligence,” according to Liam Griffin of SWKS. That helped investors imagine a future for the company normally associated with Apple’s (AAPL) iPhone.

Alphabet’s Spending Problems

But then there was Alphabet (GOOGL). Sure, the Internet giant might have the single-most valuable business on the Web, but what about after that? Investors are worried about the company’s spending plans as it struggles to monetize projects like Waymo. Meanwhile, the metrics of its core search operations continue to erode.

Twitter (TWTR) was also plagued by cost pressures and weak guidance. Meanwhile, the metrics of its core social-media business showed modest declines in user traffic.

Video-game makers Electronic Arts (EA) and Take-Two Interactive (TTWO) fared even worse amid signs of stagnation in their core franchises and competition from free titles like Fortnite. They were among the worst performers in the S&P 500 on the week.

Snap (SNAP) chart with 50-day moving average and one-day changes.

Snap (SNAP), on the hand, beat earnings estimates after halting a steady bleed of attrition. That fueled its biggest rally in a year.

Other smaller technology stocks also climbed on strong results.
Paycom Software (PAYC) is up 16 percent in the last week, hitting a new all-time high, after beating estimates. Match (MTCH) benefited from strong user growth at Tinder and Symantec (SYMC) enjoyed widening use of its security software.

FireEye Founders, But Barra Drives Change at GM

FireEye (FEYE), however, forecast poor results in coming quarters as it keeps trying to turn around its business. That overshadowed better-than-expected profit and revenue in the most recent quarter.

Some high-profile companies like General Motors (GM), Walt Disney (DIS) and Merck (MRK) also issued strong results. GM continued its transformation and rationalization under CEO Mary Barra. DIS surpassed consensus thanks to legacy operations like theme parks and broadcast, although investors are waiting for the Magic Kingdom to evolve into a digital powerhouse.

The consumer space also had some big winners. Chipotle Mexican Grill (CMG) ripped to a three-year high as its turnaround continues to take hold. Deckers Outdoors (DECK) beat estimates for at least the fifth straight quarter. Estee Lauder (EL) had a clean sweep of better-than-expected earnings, revenue and guidance. Ralph Lauren (RL) and Clorox (CLX) also moved higher on strong numbers.

A big decliner in the consumer space was Tapestry (TPR), the parent of Kate Spade and Coach. A poor holiday season caused it to miss estimates and guide lower.

Rounding out the last week’s numbers were energy giants like Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP). All three reported better-than-expected results, with XOM and COP enjoying production gains.

In conclusion, it was a mixed weak for earnings. There was
more optimism toward semiconductors, while prominent growth stocks like GOOGL and DIS continue to drift in a changing communications landscape. Meanwhile smaller software and select consumer names like GM have shown signs of reviving their businesses.

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 07/02/2019.

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