With earnings season kicking into full gear this week, many investors, technology watchers and consumers are going to wonder what is in store for the consumer electronics sector heading into 2016. Credit Suisse’s John Pitzer has issued his pre-earnings outlook for the semiconductor sector. His view is that chip companies are effectively balancing on a pin while they are waiting for the macro situation to improve.

Pitzer picked a few of the winners as NXP Semiconductors N.V. (NASDAQ: NXPI), Intel Corp. (NASDAQ: INTC), Analog Devices Inc. (NASDAQ: ADI), Microchip Technology Inc. (NASDAQ: MCHP) and Applied Materials Inc. (NASDAQ: AMAT).

The bottom line in the report was stated as:

For the 2nd consecutive quarter, we expect a “Meet and Lower” Earnings Season. Whether calendar fourth quarter represents the last negative revision is atypically dependent on the macro – troughs usually occur when the production/consumption GAP is so large, actual sell-thru is inconsequential – that is not the case this time. Despite an uncertain macro, stocks that don’t look cyclically cheap, and slowing consumer demand, there are structural tailwinds to support a re-rating higher for the sector – specifically, slowing supply growth, rising barriers to entry, consolidation and a mix shift away from consumer should allow Semis to outgrow global GDP for the first time since the mid-1990s. Our analysis suggests stock lows this cycle have already been established, volatility around the macro will persist, and Semis should be under accumulation.

Credit Suisse gave a few other sector highlights as:

• Calendar third quarter revenues should be mostly in-line with consensus growth of roughly 3% quarter over quarter versus seasonal of about 5% quarter over quarter.
• Calendar fourth quarter revenue should be flat to down 2% quarter over quarter versus consensus of up ~3% quarter over quarter and seasonal of down ~1% quarter over quarter.
• Calendar 2016 revenues should be flat to down 2% year over year versus consensus of 3% to 5% year over year growth.
• Earnings per share (EPS) declines will outpace revenue in the near-term due to negative leverage – expect roughly a 1,000 to 1,200 basis point downside to calendar year 2016 EPS.
• Calendar year 2016 EPS estimates have declined about 15% from peak versus the 5 prior corrections of 24% to 74% with a median of about 25%.

ALSO READ: Deutsche Bank Slashes Price Targets on Chip Equipment Leaders

Shares of NXP were up 2% at $89.07 on Monday afternoon. The stock has a consensus analyst price target of $125.62 and a 52-week trading range of $53.81 to $114.00.

Intel shares were relatively flat at $32.15 on its 52-week trading range of $24.87 to $37.90. The stock has a consensus analyst price target of $33.79.

Shares of Analog Devices were relatively flat at $56.62. The stock has a consensus analyst price target of $67.56 and a 52-week trading range of $42.59 to $68.97.

Microchip shares were down 0.2% at $46.18 on its 52-week trading range of $36.92 to $52.44. The stock has a consensus analyst price target of $49.40.

Shares of Applied Materials were down 0.7% at $15.55. The stock has a consensus analyst price target of $21.39 and a 52-week trading range of $14.25 to $25.71.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.