After Texas Instruments Earnings, Should Investors Worry About Intel?

Despite posting first quarter earnings and revenue beats yesterday, shares of chipmaker Texas Instruments (NASDAQ:TXN) are down on Wednesday. Now, with Intel (NASDAQ:INTC) set to report its first-quarter earnings tomorrow, should investors worry that one of the biggest chipmakers in the world could see similar stagnation?

Texas Instruments

Texas Instruments posted first-quarter earnings of $0.89 per share on Tuesday, which topped the Zacks Consensus Estimate of $0.83 per share. The company also edged our consensus $3.3 billion revenue estimate with its reported $3.4 billion in revenue. Texas Instruments’ revenue was up 13.1% year-over-year, due in part to greater demand in its automotive and industrial sectors.

On top of a positive earnings report, Texas Instruments has fought its way into new, forward-looking business sectors. "In our core businesses, Analog revenue grew 20 percent and Embedded Processing revenue grew 10 percent from the same quarter a year ago,” Texas Instruments chairman, president, and CEO Rich Templeton said in a statement yesterday. “Operating margin increased in both businesses.”

But its stock price has gone down only a day after reporting positive earnings. Today, the company with a Zacks Rank #2 (Buy) has seen its stock price drop 1.36% to $81.24 per share in early afternoon trading.

With the Dallas, Texas-based company reporting solid first quarter numbers, including growth in its important embedded processor sector, does the fact that its shares are down mean the semiconductors industry is falling out of favor with investors? And what might it mean for Intel as the company readies for its first-quarter earnings report tomorrow?

Intel

While Texas Instruments’ stock price has increased steadily over the last two years, Intel’s stock price has remained relatively flat over that same period, despite occasional peaks and valleys.

Intel’s first quarter guidance called for sales to be almost flat sequentially, with the company expecting to post revenues of around $14.8 billion. The stagnated forecast comes as Intel’s’ once-thriving PC sector has declined.

Intel has started to shift its focus towards businesses with potentially long-term upside, including artificial intelligence. Intel recently acquired Mobileye NV (NYSE:MBLY) for $15 billion as it hopes to move into the autonomous vehicle market. However, that deal likely won’t be completed until the end of the year.

The semiconductor sector has thrived overall in recent years with demand for computer chips growing seemingly exponentially as more and more businesses and consumer products rely on semiconductors.

As the semiconductor industry has boomed, Intel has tried to grow along with it. Intel’s memory chip business led to $2.6 billion in 2016 revenue. The sector, which was the company’s fourth-largest business segment in 2016, is expected to become its third-largest revenue driver by the second quarter of 2017.

But while the Zacks Semiconductor General industry has seen a gain of 2.1% since the start of 2017, Intel shares are up only 0.2%.

Intel’s stock is up marginally in afternoon trading on Wednesday. Intel is currently a Zacks Rank #4 (Sell).

Bottom Line

The memory chip and computer chip industry is growing. However, as the sector grows due to increased demand across most major world economies, competition could hurt chip markers’ stock prices while consumers see prices go down overall.

The semiconductor market is flush with companies, but as more and more enter the market there is potential for cannibalization.

Shares of some of the best-performing semiconductor ETFs in 2016, including iShares PHLX Semiconductor SOXX, VanEck Vectors Semiconductor ETF SMH, and SPDR S&P Semiconductor (NYSE:XSD) ETF XSD, are all down marginally on Wednesday.

Advanced Micro Devices, Inc. (NASDAQ:AMD) , Micron Technology, Inc. (NASDAQ:MU) , and Xilinx, Inc. (NASDAQ:XLNX) , which all big-time players in the semiconductor space, are also all down in afternoon trading.

With shares of chip making power Texas Instruments down only a day after posting solid first quarter earnings, Intel might suffer a similar fate.

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