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Home / Business / Two struggling industries can tear the tech revenue season

Two struggling industries can tear the tech revenue season



The tech sector is expected to have its worst earnings season in several years, and mixed signals from companies that make core hardware components – semiconductors and storage devices – suggest that the bottom may not be close.

Reduced spending by some large data center vendors has led to a downturn in the cloud boom, which has hurt the revenue and revenue of many hardware manufacturers this year, a trend that is expected to hit poorly in the third quarter. The S&P 500 index's information technology sector (which lost some of the technology's biggest name in a sector change last year) is expected to see revenue fall more than 1

0%, mostly thanks to chips and hardware and storage sectors.

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Semiconductors are expected to have the worst results in any technique, with earnings per share dropping an entire 30% from last year's results and sales are projected to decline 11.5%, according to a FactSet survey of analysts' estimates that includes some reported numbers, such as last month's pull-down results from the memory chip kingpin Micron Technology Inc.

MU, + 1.97%

MU, + 1.97%

MU, + 1.97%

in its data.

Many analysts believe the dismal results in the third quarter reflect the bottom of the current semiconductor decline, and companies have suggested that the crunch is eased, including Micron in the season's first major tech earnings test. Investors seem to think so: Philadelphia Semiconductor Index

SOX, + 2.05%

has jumped almost 38% this year, despite massive revenues and revenue declines.

But semiconductor companies hinted earlier this year that they were already rebounding, and we still haven't seen it. A return speech before the end of the year is far from given due to the cross currents from a trade war with China, the PC upgrade cycle and the wait for 5G technology.

"Hopefully we are at the end of [down] cycling, but who knows," says Stacy Rasgon, a Bernstein Research analyst who admitted he was surprised by the still high valuations of the semiconductor group overall.

"There's still a lot of uncertainty," Rasgon said last week. "The trade talks go every day every day." He said he thinks investors seem to have a little fear of missing out. "The sector is usually expectant," he said, adding that investors "are afraid not to be there" when the news gets better.

See also: The five companies that are most wrong for the revenue recession

The news has not necessarily improved in the first few days of this revenue season. Texas Instruments Inc.

TXN, + 1.77%

provided a very disappointing fourth-quarter forecast, and executives commented on customer problems that led to at least one analyst questioning the entire sector.

"Of course, we can't rule out that customers have built inventory in preparation for building or concerns about trade tensions, but the weakness we saw wasn't limited to any region, so it was very broad based," said Dave Paul, TIs vice president of investor relations, to analysts on Tuesday. TI chief financial officer Rafael Lizardi told analysts: "This thing we've been in, it's [has been] for four quarters, and it's going to be longer than that."

Xilinx Inc.

XLNX, + 1.91%

was estimated to be an outlier with positive growth, but gave a slight forecast and blamed the sales ban on Chinese technology giant Huawei, as well as continued data center problems.

"We see a break in overall customer orders" in the fourth quarter of the calendar, Xilinx CEO Victor Peng told analysts, adding that he expects growth to resume in Xilinx's fourth quarter, which will be the first quarter calendar. [19659002] Intel Corp.

INTC, + 8.10%

appeared to provide the relief that the chip investors had been expecting by showing a 4% growth in data center business when an expected contraction and lifting management. But that surprise gain was partly due to $ 200 million of orders that came in for the third quarter instead of the fourth ahead of expected tariffs, causing analysts to doubt that momentum could continue. After flying higher in late trading on Thursday, Intel fell back to regular trading on Friday.

However, even with the doubt, chip companies may be in a better position than storage providers. The sub-sector, officially known as "Technology Hardware Storage and Peripherals," is expected to do slightly better than semiconductors, but that's largely because it includes Apple Inc.

AAPL, + 1.23%

and HP Inc.

HPQ, + 1.23% .

Storage companies such as Western Digital Corp.

WDC, + 2.87%

                            
                                  
      
      
      
      
      
      
      
                                        Seagate Technology

STX, + 1.20%

and NetApp Inc.

NTAP, + 1.01%

has been lubricated by cloud service providers who take a breath in the development. Western Digital, for example, has seen earnings per share fall more than 90% in each of the past two quarters, and is expected to report a reduction of more than 90% when it reports on October 30. Seagate's earnings are expected to fall by about 47%.

Read more about the manufacturers of mixed signals that memory chips have provided for a rebound

demand to increase in the second half of the calendar year, "Robert Eulau, CFO of Western Digital, told investors at a conference last month. "And that's actually what's been played out, and we've done really well from a hard-disk point of view with hyperscalers, very pleased with how we're positioned there and the market share we have."

With less than three months left in the second half that both chip companies and storage companies have said would give a rebound, we still haven't seen it. This gap warned early this year that optimism about a second-half comeback for chips came with very little evidence, and so far we have still seen little to suggest a sustained improvement. Still, analysts expect the rebound to begin in the holiday season, with current projections asking for hardware revenue to grow in the fourth quarter while the decline in chips is expected to shrink to about 21% instead of this quarter's 30%. [19659002] However, if semiconductor and storage companies cannot meet these forecasts, and if TI and Xilinx end up being leading examples, then cross currents will suddenly go in the same direction: Down. And technological stocks can go right along with them.


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