As we’ve reached the end of the first quarter calls in the US, we can take a snapshot of the tech sector and see what it may tell us about the future. Earnings reported by technology companies across a range of subsectors have been good. In the internet space, both Google and Facebook reported stronger than expected revenues and earnings and guided to solid revenue growth in the coming quarters. This indicates that despite the recent negative press, their businesses continue to perform.
On the semi-conductor side there were mixed results with companies that have a diverse exposure, such as Texas Instruments, reporting better than expected results, but stocks which are part of the Apple iPhone value chain appearing to be facing difficulties. Our analysis suggests that iPhone 10 sales have been much poorer than expectations and this is leading to a cut in orders and slower growth for companies that supply to Apple. The last time we saw such a decline in orders in 2016, the semi-conductor sector was hit particularly hard. We think the risk of that is lower, given many suppliers of Apple have built in this risk into their manufacturing and so may be in better shape now than 2016.
In another area, results for Australian stocks with US exposures have been mixed, with Boral reporting weaker sales due to poor US weather, while Brambles reported 10% growth in 3rd quarter earnings, implying that its US business appears to be performing in line with management expectations.
Uday Cheruvu, Portfolio Manager, PM Capital