Tech earnings are a test amid tumultuous times, and all the chips are on the table

As the tech industry faces turmoil unlike any period in the past decade or more, it is time for the companies to tell the truth about where they are headed.

The tech industry has been rife with issues in 2019. The semiconductor business has experienced a painful downturn, a tariff fight with China has hurt the profits of a range of hardware makers, and internet and social media companies are under regulatory scrutiny after a year of privacy and security scandals and issues. The results: a potential earnings recession in the S&P 500 SPX, +0.20% which would be the first such decline in three years, led by a fall in the technology and materials sectors.

FactSet estimates earnings overall at information-technology companies will be down 12% in the second quarter, excluding interactive media and services companies like Alphabet Inc. GOOGL, -0.01% GOOG, -0.02% and Facebook Inc. FB, +0.12% which have moved to a different sector that is expected to decline less than half a percent overall. The real anchor for earnings right now are semiconductors, which are expected to report a 32% nosedive amid a shocking decline that has been faster and deeper than even the 2008-2009 downturn, according to Dan Hutcheson, president of VLSI Research.

Chip companies have repeatedly promised a better second half, after a sudden slowdown in sales at the end of 2018 caught them off guard. As this column warned earlier this year, though, those promises didn’t have a lot of support, and now their forecasts will have to be much more specific.

As we approach earnings season, those promises need much more context. Yes, the second half is likely to be better, but only when compared with the first half, not last year’s results. 

“We don’t think the second half will pass 2018 levels,” Hutcheson said.

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