The semiconductor industry has weathered the COVID-19 pandemic better than many other industries. It concluded 2020 with 6.5% revenue growth. The global semiconductor market is projected to hit $726.73 billion by 2027, growing at a CAGR of 4.7%. This growth can be attributed primarily to rising demand for consumer electronics devices and increasing use of integrated circuits in developing economies. In addition, the mainstream adoption of IoT, 5G, AI, and the increasing semiconductor needs of the automotive sector are providing new growth opportunities.
The industry is currently seeing a demand explosion, which is causing a near-term supply shortage. Pandemic-driven remote living trends are the primary drivers of the demand surge. However, given the limited supply because of a bottleneck among outsourced chip factories and weak trade relationship with China, the semiconductor market has now reached a near crisis point regarding supply. Consumers are facing price rises and product shortages, while many automakers have halted their production. Experts are of the opinion that this chip shortage is likely to persist for some time.
Given this backdrop, many chipmakers are thriving. The prevailing capacity utilization tightness, rising prices and strong demand bodes well for them. Broadcom Inc. (AVGO), United Microelectronics Corporation (UMC), and Cirrus Logic, Inc. (CRUS) are three companies that we expect to benefit from the supply-demand imbalance.
Click here to checkout our Semiconductor Industry Report for 2021
Broadcom Inc. (AVGO)
AVGO is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. The company’s product portfolio serves critical markets, including data center, networking, enterprise software, broadband, wireless, storage and industrial. A few of its solutions include data center networking and storage, mainframe and cyber security software focused on automation and factory automation, among others.
In January, AVGO announced that its BCM4389 chip would power the world’s first Wi-Fi 6E phone, the Samsung Galaxy S21 Ultra. Its partnership with Samsung is expected to provide to consumers worldwide a seamless and secure connected experience, including better Wi-Fi QoS, more precise indoor location accuracy and five times better battery utilization.
This month, S&P Dow Jones included AVGO as a constituent in the S&P 500 because it is a better representative of the index’s market capitalization range. AVGO had been a constituent of the S&P 500. AVGO’s net revenues have increased 13.6% year-over-year to $6.66 billion in the first quarter, ended January 31, 2021. Its adjusted ebitda has risen 20.7% from the year-ago value to $3.94 billion, while its non-GAAP EPS has improved 25.9% to $6.61 over the same period.
Analysts expect AVGO to report EPS of $6.41 in the current quarter (ending April 30, 2021), up 24.7% year-over-year. A consensus revenue estimate of $6.51 billion for the second quarter represents a 14.2% improvement from the year-ago value. Furthermore, the company beat the Street’s EPS estimates in three out of the trailing four quarters. The stock has gained 25.2% over the past six months.
AVGO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
AVGO has a B grade for Growth, Momentum, and Quality. It is currently ranked #2 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry.
In total, we rate AVGO on eight different levels. Click here to see the additional POWR Ratings for AVGO (Value, Stability, and Sentiment).
Note that AVGO is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
United Microelectronics Corporation (UMC)
UMC is a global semiconductor wafer foundry. The Company provides integrated circuit (IC) production for applications spanning every sector of the electronics industry. It operates through two segments: Wafer Fabrication and New Business, which includes the delivery of solar energy solutions.
Earlier this month, UMC collaborated with Sensirion to produce medical related ICs to battle the COVID-19 pandemic. Despite global tightness in foundry semiconductor manufacturing capacity, the company has allocated capacity to produce Sensirion’s temperature sensor ICs for COVID-19 vaccine transport and flow-sensors for medical ventilators.
UMC’s operating revenues have increased 8.2% year-over-year to $1.59 billion in the fourth quarter, ended December 31, 2020. Its operating Income has risen 178.3% from its year-ago value to $197 million, while its earnings per ADS has increased 22.7% versus the same period last year to $0.16. UMC’s sales for the month of February increased 9.9% year-over-year to NT$14.95 million.
A consensus revenue estimate of $1.68 billion for the current quarter (ending March 31, 2021) represents a 19.7% improvement from the year-ago value. The EPS for the first quarter is expected to grow 166.7% year-over-year. The stock has gained 85.6% over the past six months.
It’s no surprise that UMC has an overall A rating, which translates to Strong Buy in our POWR Ratings system. UMC has a B grade for Quality, Growth, and Value. In the same industry, it is ranked #1.
Beyond what we’ve stated above, we also have given UMC grades for Momentum, Stability, and Sentiment. Get all UMC’s ratings here.
Cirrus Logic, Inc. (CRUS)
CRUS is a leader in low-power, high-precision mixed-signal processing solutions that create innovative user experiences for mobile and consumer applications. The company’s products find application in the audio and energy industries. Its product pipeline can be categorized into three segments: Portable Audio, Non-Portable and Other.
On March 24, CRUS unveiled its newest flagship CS35L45 boosted amplifier for a better and more immersive audio experience from smartphones, tablets and mobile gaming devices. According to the company, the amplifier will deliver higher excursion for high-peak loudness with an improved dynamic range and more tonal balance at all volume levels. The product is expected to attract many potential manufacturers that are looking to push audio performance to new industry benchmarks.
The company has been taking steps to boost its business this year, thereby preparing it to become more competitive in a post-pandemic world. To this end, CRUS has increased its focus on developing a roadmap of innovative products that will enable it to capitalize on growing demand for audio and high-performance mixed-signal solutions.
CRUS net sales have increased 29.7% year-over-year to $485.80 million in the fiscal third quarter, ended December 26, 2020, due to strong demand for products for recently introduced smartphones. Its non-GAAP operating income has increased 54.2% from its year-ago value to $145.94 million, while its non-GAAP net income has increased 49.3% to $127.76 million over the same period, yielding a non-GAAP EPS of $2.13.
Analysts expect CRUS’ revenues to increase 8.3% year-over-year to $302.47 million in the current quarter ending March 2020. The consensus EPS estimate of $0.71 for the fourth quarter represents a 4.4% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat consensus Street estimates in each of the trailing four quarters. The stock has gained 22.7% over the past six months.
CRUS POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our rating system. CRUS has a B grade for Momentum, Growth, and Quality. It is currently ranked #4 of 99 stocks in the same industry.
Click here to see the additional POWR Ratings for CRUS (Value, Stability, and Sentiment).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Click here to checkout our Semiconductor Industry Report for 2021
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AVGO shares were trading at $465.38 per share on Wednesday morning, up $9.22 (+2.02%). Year-to-date, AVGO has gained 7.12%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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