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U.S. chipmakers' shares rally despite demand uncertainty

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04/17/2019 | 04:21pm EDT
Traders work on the floor at the NYSE in New York

SAN FRANCISCO (Reuters) - As Qualcomm's major victory against Apple sent semiconductor stocks to record highs on Wednesday, the sector's strong recent rally may be at odds with uncertainty about an ongoing downturn in global demand.

With the Philadelphia Semiconductor index jumping 1.4% on Wednesday to its second straight record high and now up 35% year to date, upcoming March-quarter reports could become a make-or-break moment for investors.

"People in the industry we speak to seem incredulous at the stock prices but are obviously more than willing to accept the benefit. Very simply, business is not as good as the stocks would imply and we would challenge someone to suggest their business has improved as much as their stock has," Semiconductors Advisors wrote in a client note.

Announced on Tuesday, Apple's surprise settlement with Qualcomm calls for its iPhones to once again use Qualcomm's modem chips. As a result, Qualcomm's stock has seen its strongest two-day gain since 1999, up 35% and adding $26 billion to the chipmaker's market capitalization.

"The resolution caps a multi-year period in which (Qualcomm's) stock has broadly been viewed as virtually uninvestible, and the resolution will likely go a long way toward assuaging investors who have been terrified of the potential for negative legal and regulatory outcomes," Bernstein analyst Stacy Rasgon wrote in report.

Intel surged 3.6% to a record high after it said hours after the Apple settlement was announced that it would stop making modem chips, an unprofitable business that some investors believe the company is better off without.

Despite Tuesday's seismic shift for the two California semiconductor makers, uncertainly blankets the global industry, with chipmakers yet to reach consensus that a downturn that started last year has touched bottom and little agreement about when and how strongly a recovery will occur.

That uncertainty will increase the focus on Texas Instruments Inc when it kicks off March-quarter reports for major U.S. chipmakers on April 23. Analysts on average expect an 8% drop in revenue for Texas Instruments' first quarter and a 5% drop for 2019, although bullish investors argue that industry estimates could rapidly rise as strong signs of a recovery emerge.

Intel reports on April 25, with analysts calling for a 0.3% revenue dip in the first quarter and a 3.7 percent slide in non-GAAP net income to $4.02 billion (3.08 billion pounds). Qualcomm reports on May 1.

(Reporting by Noel Randewich; Editing by Cynthia Osterman)

By Noel Randewich

Stocks mentioned in the article
ChangeLast1st jan.
APPLE -0.38% 178.97 Delayed Quote.13.46%
INTEL CORPORATION 0.09% 44.57 Delayed Quote.-5.11%
QUALCOMM -3.00% 66.21 Delayed Quote.19.94%
TEXAS INSTRUMENTS -0.73% 105.06 Delayed Quote.11.99%
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Sales 2019 257 B
EBIT 2019 62 630 M
Net income 2019 53 422 M
Finance 2019 97 442 M
Yield 2019 1,66%
P/E ratio 2019 15,62
P/E ratio 2020 14,05
EV / Sales 2019 2,82x
EV / Sales 2020 2,75x
Capitalization 823 B
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Technical analysis trends APPLE
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Average target price 214 $
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Timothy Donald Cook Chief Executive Officer & Director
Arthur D. Levinson Chairman
Jeffrey E. Williams Chief Operating Officer
Luca Maestri Chief Financial Officer & Senior Vice President
Kevin M. Lynch Vice President-Technology
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