While Cisco Faltered, Top Semiconductor Leaders Offer Opposing Views Ahead

It can be confusing to investors when operating companies that sell to companies and to the public have a differing view than the capital spending (capex) companies which supply the industry. And with a market that has fully recovered from the panic-selling lows of March, this is a time when some companies are still not willing to offer guidance while others seem to have some clarity.

Thursday was one of those days that semiconductor executives and investors are going to be scratching their heads over. Micron Technology, Inc. (NASDAQ: MU) is a leader in the world of DRAM and in NAND, and its stock fell to a 10-week low on some cautious views. Applied Materials, Inc. (NASDAQ: AMAT) is the top capital equipment maker for semiconductor and related producers, and gave an upbeat view after the close.

What is amazing about the differing views today is that this is also after a major disappointment on the industry spending views from Cisco Systems, Inc. (NASDAQ: CSCO).

Micron Technology saw its shares fall by 4.8% to $46.14 on Thursday after CFO David Zinsner suggested that its fiscal first-quarter would be less than the $5.4 billion to $5.6 billion revenue range it had previously offered. The Refinitiv consensus estimate was calling for $5.96 billion (Capital IQ was at $5.81 billion) for the quarter ending in August.

Also weighing on Micron shares was news that Deutsche Bank downgraded its rating to Hold from Buy along with a muted $48 price target after previously closing at $48.48. Another firm called Cascend noted that DRAM sales were flat in July for Micron after it had seen several months of growth. Their view is that data center operations are finally digesting after what had been a massive COVID-19 induced surge. The firm lowered its target to $55 from $70 and warned that it could expect some weakness elsewhere.

Applied Materials’s CEO announced that the company “is operating at pre-COVID levels of productivity” and that it is “delivering outstanding financial results.” On top of claiming to be outperforming today, the company also noted that it is “positioned to grow faster than our markets over the next several years.”

Applied generated revenue growth of 23% from a year earlier to $4.40 billion in the last quarter. It also announced gross margin of 44.5% and that its adjusted operating income of $1.16 billion came to 26.4% of net sales for a total adjusted earnings per share of $1.06. Refinitiv’s consensus estimates were just $0.95 EPS and $4.18 billion.

For the coming quarter, its fiscal fourth-quarter, Applied Materials sees net sales to be approximately $4.60 billion and sees adjusted earnings of $1.11 to $1.23 EPS. While that sales number is given a $200 million wiggle room above and below, Refinitiv’s consensus estimates are $4.36 billion in revenues and just $1.02 EPS., plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.11 to $1.23.

At $46.14 after Thursday’s drop, Micron’s 52-week range is $31.13 to $61.19 and its Refinitiv consensus analyst target price was $64.58 before these cuts.

Applied Materials saw its stock close down over 2.1% at $65.07 on Thursday in regular trading and its stock popped up by 1.5% to $66.05 in Thursday’s after-hours trading session. Its 52-week range is $36.64 to $69.44 and the Refinitiv consensus analyst price target is $70.29.

While Cisco Systems, inc. (NASDAQ: CSCO) is trying to get into more services and subscriptions around security, the company is still considered one of the technology bell-weathers. Cisco’s earnings report from Wednesday was above expectations, but the warning of lower revenues, followed by yet another restructuring and the announced resignation of its CFO, weighed heavily on its stock and this also weighed on some related companies.

Analysts also pushed downgrades and target cuts on the stock as the company is seeing weak corporate spending trends. Cisco shares closed down about 11.2% at $42.72, and its 52-week trading range is $32.40 to $50.30.

It is not unusual for some companies to be performing better than others in their industries. That said, it’s a harder read when multiple industry leaders have some opposing views when they are looking at many of the same underlying business trends.

The VanEck Vectors Semiconductor ETF (NYSEArca: SMH) traded down 0.9% to $179.86 on Thursday, and it has a 52-week range of $96.00 to $173.09. This is the top semiconductor ETF and Applied Materials accounts for nearly 4.5% of its weighting. Micron accounts for 3.7% of the the VanEck Vector Semiconductor ETF.

And while chip stocks are in focus, will stock splits play a role ahead?

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