The demand for semiconductors has increased substantially over the past year due to the increasing use of electronic devices, the sharpening focus on the electrification of vehicles, and growing tech integration in virtually every industry. However, with production slowing during the initial days of the pandemic, the whole world has been facing an acute shortage of semiconductors.
Governments worldwide and industry titans have been taking steps to accelerate the supply. President Biden’s $50 billion investment plan to boost the U.S semiconductor industry, along with the initiatives by other leading semiconductor producing countries, should be able to ramp up the supply to meet the increasing demand. Also, South Korea recently announced its plan to invest $452 billion in the industry over the next nine years. And Taiwan Semiconductor Manufacturing Company (TSM), the world’s largest semiconductor manufacturer, has responded to the shortage by increasing its capital spending budget to $28 billion in 2021. These investments and robust market demand should drive the semiconductor industry’s growth. The industry is expected to grow at a 6% CAGR over the next five years.
We think this sector's growth potential should allow stocks Broadcom Inc. (AVGO), United Microelectronics Corporation (UMC), Semtech Corporation (SMTC), and ChipMOS TECHNOLOGIES INC. (IMOS) to rebound in the near term and continue rallying thereafter.
Click here to checkout our Semiconductor Industry Report for 2021
Broadcom Inc. (AVGO)
AVGO is a technology company that designs, develops and supplies semiconductor infrastructure software solutions. The company operates through two segments: semiconductor solutions and infrastructure software.
On June 15, AVGO introduced industry-first capabilities for Value Stream Management (VSM) in its ValueOps software portfolio. This industry-first solution is expected to be a big hit in the market, thereby allowing the company to strengthen its position in the industry.
AVGO’s net revenues increased 15.1% year-over-year to $6.61 billion in its fiscal second quarter, ended May 2. Its operating income grew 157.8% from its year-ago value to $1.98 billion, while its net income improved 165.2% year-over-year to $1.49 billion over the period. The company’s EPS increased 182.1% year-over-year to $3.30.
A $7.22 billion consensus revenue estimate for its fiscal fourth quarter, ending October 2021, indicates an 11.6% improvement from the same period last year. Analysts expect the company’s EPS to come in at $ 7.46 in the next quarter, indicating a 17.5% rise year-over-year. Also, AVGO surpassed the Street’s EPS estimates in each of the trailing four quarters. AVGO has gained 6.6% year-to-date and 49.9% over the past year.
AVGO has an overall A rating, which equates to Strong Buy in our proprietary POWR Rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree. AVGO has a B grade for Growth, Stability, Sentiment, and Quality. It is ranked #2 of 98 stocks in the Semiconductor & Wireless Chip industry.
Beyond what we’ve stated above, we have also rated AVGO for Momentum and Value. Click here to view all AVGO Ratings.
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United Microelectronics Corporation (UMC)
Based in Taiwan, UMC is a leading global semiconductor foundry company that provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. The Company operates through two segments--wafer fabrication and new business.
On April 28, UMC partnered with its global customers to expand its production capacity at its P6 semiconductor foundry. The expansion policy should increase its production capacity to meet current, heightened market demand.
UMC’s revenues increased 11.4% year-over-year to NT$47.10 billion ($1.65 billion) in its fiscal first quarter, ended March 31. Its operating income grew 123.2% from its year-ago value to NT$7.62 billion ($267 million). Its net income stood at NT$9.89 billion ($347 million), up 703.8% from the same period last year. The company’s earnings per ADS increased 347.4% year-over-year to NT$4.25 ($0.15).
Analysts expect UMC’s revenues to increase 15.8% year-over-year to $7.19 billion in the current year. A $0.57 consensus EPS estimate for the current year indicates a 35.7% rise compared to the last year. Its EPS is also expected to increase 44.4% year-over-year to $0.13 in the current quarter, ending June 2021. The company has an impressive earnings surprise history also; it beat consensus EPS estimates in three of the trailing four quarters.
UMC has gained 259.7% over the year and 10.1% year-to-date. However, the stock has retreated 1.3% over the last five days to close yesterday’s trading session at $9.28.
It is no surprise that UMC has an overall A rating, which equates to Strong Buy in our proprietary POWR Rating system. UMC has a B grade for Value, Momentum, Stability, Sentiment, and Quality. Among the 98 stocks in the Semiconductor & Wireless Chip industry, UMC is ranked #1. Click here to view additional UMC Ratings and other details.
Semtech Corporation (SMTC)
Camarillo, Cal.-based SMTC is a leading global manufacturer and supplier of analog and mixed-signal semiconductor products and advanced algorithms. The company’s product pipeline includes signal integrity, protection, wireless and sensing, and power and high reliability.
On June 8, SMTC announced that SkyLab B.V. (SkyLab), will use SMTC’s LoRa Edge™ asset management platform (LR1110) to develop its small form-factor prototyping board. This demonstrates SMTC’s immense market reach and brand popularity.
In May , SMTC fashioned a collaboration with Intel Corporation (INTC) to develop optical semiconductor platforms for Light Detection and Ranging (LiDAR). This collaboration should be a major addition to SMTC’s offerings and has the potential to contribute significantly to the company’s revenues.
SMTC’s net sales increased 28.4% year-over-year to $170.37 million in its fiscal first quarter, ended May 2. Its operating income grew 77.4% from its year-ago value to $27.97 million, while its net income improved 144% year-over-year to $23.50 million over the period. The company’s EPS increased 140% year-over-year to $0.36.
A $724.30 million consensus revenue estimate for the current year indicates a 21.7% improvement from the last year. Analysts expect the company’s EPS to come in at $2.43 in the current year, representing a 38.9% rise year-over-year. Also, SMTC surpassed the Street’s EPS estimates in each of the trailing four quarters.
SMTC has gained 24.8% over the past year. However, the stock has declined 10.7% year-to-date.
SMTC has an overall B rating, which equates to Buy in our proprietary rating system. SMTC has a B grade for Growth, Sentiment, and Quality. It is ranked #5 in the Semiconductor & Wireless Chip industry.
Beyond what we’ve stated above, we have also rated SMTC for Value, Momentum, and Stability. Click here to view all SMTC Ratings.
ChipMOS TECHNOLOGIES INC. (IMOS)
IMOS is a leading provider of semiconductor testing and packaging solutions. The company engages in research, development, manufacture, and sale of high-integration and high-precision integrated circuits and related assembly and testing services. IMOS is based in Taiwan.
The company reported record monthly revenues in April, demonstrating its strengthening sales and constant growth.
IMOS’s revenue increased 15.7% year-over-year to NT$6.47 billion ($230.61 million) in its fiscal first quarter, ended March 31. Its profit for the period stood at NT$959.12 million ($34.22 million), up 34.6% from the same period last year. Its operating profit grew 28.8% from the year-ago value to NT$1.16 billion ($41.34 million). The company’s EPS increased 34% year-over-year to $1.30.
A $252.90 million consensus revenue estimate for its fiscal second quarter (ending June 2021) indicates a 37.4% increase year-over-year.
IMOS has gained 50.4% over the past year and 39.7% year-to-date. However, the stock has lost 1.5% over the last five days to close yesterday’s trading session at $33.99.
IMOS has an overall B rating of B, which equates to Buy in our proprietary POWR Ratings system. IMOS has an A grade for Sentiment, and a B grade for Value, Momentum, and Stability. It is ranked #11 in the Semiconductor & Wireless Chip industry. Click here to view additional IMOS Ratings for Growth and Quality.
Click here to checkout our Semiconductor Industry Report for 2021
AVGO shares were trading at $470.10 per share on Thursday afternoon, up $3.44 (+0.74%). Year-to-date, AVGO has gained 9.05%, versus a 14.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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