Semiconductor Companies: Is That GAAP Or Non-GAAP Forward PE?

|
 |  Includes: AMD, ATML, AVGO, CRUS, CY, IDTI, INTC, LLTC, LSI, MCHP, MRVL, MU, MXIM, NVDA, QCOM, STM, SWKS, TSM, TXN, XLNX
by: John Helzer

Beware of comparing forward or trailing PE's between different semiconductor companies.

I thought I would check Yahoo Finance 3Q earnings/share actuals across a number of semiconductor companies to find out how analysts are reporting earnings estimates by company. What I found was only Altera, Atmel, Intel, Nvidia, TSMC, and Xilinx are being reported as GAAP earnings. The other 13 that I checked are being reported as Non-GAAP. (See chart below- Last 3 columns)

I also show 3Q sequential revenue and 4Q revenue guidance by company stated on a percentage basis. (First 3 columns).

Click to enlarge
(Click to enlarge)

From the screen above:

3 of the 6 companies [Atmel (NASDAQ:ATML), Intel (NASDAQ:INTC), Nvidia (NASDAQ:NVDA)] that analysts use GAAP earnings estimates also report Non-GAAP earnings. For Q3 the average difference between GAAP vs. Non-GAAP earnings was 10% for these 3 companies. For the 13 companies that analysts report Non-GAAP earnings the difference is a whopping 51%.

Obviously, when calculating forward PE's or PEG ratios for a company using GAAP earnings will give a less favorable result than when you use Non-GAAP earnings. This can affect investment decisions. So much so that the CEO of Microchip Technology Inc. (NASDAQ:MCHP) at every conference call requests analysts to report Non-GAAP earnings to First Call so his company will be compared to others using the same methodology.

In conclusion, when comparing companies PE's and PEG ratios across sectors it is a good idea to investigate whether the earnings estimates are all calculated using the same accounting methodology.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.