Investors in semiconductor stocks should brace themselves heading into first-quarter earnings that kick off with Intel's report, says a Deutsche Bank analyst. Further, chipmakers continue to grapple with high inventories that could delay a rebound, he says.
Deutsche Bank analyst Ross Seymore noted that semiconductor stocks outperformed in the March quarter. Also, the PHLX Semiconductor Sector index of 30 companies popped 20%.
However, a raft of data on shipments, prices and inventories showed the semiconductor industry still in a downturn.
"Heading into Q1 earnings the key message from our point of view is 'patience'," Seymore said in a note to clients Wednesday.
Semiconductor Stocks: V-Shape Recovery In Doubt?
He added that the SOX index "has priced in a 'V' shaped fundamental recovery beginning in second half 2023 that may prove challenging to deliver due to high levels of inventory and continued macroeconomic headwinds (inflation, interest rates, weak demand across the economy)."
Seymore went on to say: "The net result for this earnings season is that we anticipate fairly mediocre reports/guides with few significant changes in estimates, albeit with the risk remaining slightly to the downside."
Earnings for INTC stock are due April 27. Further, Qualcomm reports May 3.
Top Picks For Chip Stocks
Seymore's top picks include Qualcomm, Broadcom, Marvell Technology and MaxLinear.
Semiconductor stocks are among the most cyclical. Meanwhile, chipmakers that make memory devices, including Micron Technology, rebounded on Monday on production cuts.
"To start 2023, we expect revenues to continue to decelerate through the first half, finding their cyclical trough at some point in first half 2023 as inventory digestion and demand weakness act as industry headwinds," the Deutsche Bank analyst added. "For 2Q, we expect mixed guidance."
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
