While STMicroelectronics (STM) delivered a stronger earnings report than Texas Instruments (TXN) , neither company's numbers or commentary did much to make chip stock investors nervous about how industry demand is trending.
TI is up fractionally after topping Q4 estimates and issuing Q1 sales and EPS guidance that was slightly above consensus estimates at the midpoints. STMicro, meanwhile, is up about 5% (and at its highest levels in more than a decade) after beating Q4 estimates and setting a Q1 revenue guidance range that's fully above consensus.
Notably, the midpoint of TI's Q1 sales guidance range ($3.25 billion) still implies a 10% annual revenue drop, on par with the 10% decline reported for Q4. By contrast, the midpoint of STMicro's Q1 sales guidance range ($2.36 billion) implies a 14% annual increase, a marked improvement from Q4's 4% growth.
The chip content gains that STMicro saw with Apple's (AAPL) 2019 iPhone lineup are contributing to its top-line growth, as is stronger-than-expected demand for those iPhones. Automotive content gains are also helping, as STMicro benefits from its strong exposure to growth areas such as electric cars and advanced driver-assistance systems (ADAS).
TI and STMicro's numbers come two weeks after rival Microchip Technology (MCHP) favorably revised its December quarter sales guidance and also issued suggested its March quarter sales would be stronger than expected. The midpoint of Microchip's revised December quarter guidance implies a 9% annual revenue drop, while its forecast for mid-single digit March quarter sequential growth indicates this quarter's sales will be flat to up slightly on an annual basis.
Why does TI not expect to see the kind of improvement in its annual sales growth rate this quarter that STMicro and Microchip are forecasting? Soft demand -- and apparent share loss -- in the mobile infrastructure processor market looks like a major factor.
Whereas TI's analog chip sales only saw a 5% annual revenue decline in Q4, its "embedded processing" revenue, which covers DSPs, microcontrollers (MCUs) and other types of processors, fell 20%. And whereas TI's sales to the automotive, industrial, personal electronics and enterprise hardware end-markets each fell just 3% to 4% annually, its communications equipment sales fell about 20% sequentially and (thanks partly to tough comps) 50% annually.
When asked on the earnings call if TI had lost embedded processing share in recent quarters, IR chief Dave Pahl admitted that TI "probably" lost some share in 2019, after having gained share in 2017 and 2018. The remarks came five weeks after Pahl indicated at a Barclays conference that (although 5G rollouts will be a boon for TI's analog sales) TI isn't expecting 5G to be much of a growth driver for its embedded processing business, given its decision to prioritize automotive and industrial R&D investments.
As an aside, Marvell Technology (MRVL) might be benefiting from TI's apparent mobile infrastructure processor share losses. Marvell has frequently talked up its 5G base station processor design win activity in recent quarters, and reported that its embedded processor sales saw double-digit sequential growth in the company's October quarter thanks to "strong 5G shipments."
But while one large TI business is clearly having a rough time, the company struck a more upbeat tone on its call about chip industry demand than it did on its October call. Pahl asserted that the business environment that TI saw in Q4 can be "best-described as demand stabilizing," and noted that with customer inventory corrections now largely over, 2020 demand is likely to be "more a function of our customers' end demand."
Likewise, STMicro CEO Jean-Marc Chery said on his firm's Q4 call that the chip industry's supply chain "has now substantially normalized from the excess inventory effect we saw last year." He added that his company expects to "return to solid revenue growth" in 2020, outperforming the end-markets it serves along the way.
These remarks generally mesh with what was shared earlier this month by Microchip, which said it was "seeing strength coming from all major geographies including the U.S., Europe and Asia, as well as several major end markets including data center, industrial and automotive." And they also fit with the strong guidance shared last week by Taiwan Semiconductor (TSM) , which (in addition to the end of customer inventory corrections) is benefiting from its manufacturing technology lead, solid iPhone demand and the chip content needs of 5G phones.
Chip stocks have definitely priced in a fair amount of demand improvement over the last few months. But at the same time, what has been shared so far in earnings season suggests that the demand improvement that markets have been expecting is indeed happening -- at least provided that company-specific issues aren't a problem.