Semiconductors - Radio Frequency industry is suffering from a rise in commodity prices, supply-chain constraints and the macroeconomic uncertainty arising from the ongoing Russia-Ukraine conflict. However, continued higher spending on the deployment of 5G networking, which is gaining importance from the rapid proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS) and Augmented Reality/Virtual Reality (AR/VR) devices is a catalyst. The democratization of 5G smartphones is a tailwind for the industry players. This has bolstered demand for radio-frequency semiconductor solutions, which enhances the prospects of prominent industry players like Skyworks Solutions ( SWKS Quick Quote SWKS - Free Report) and RF Industries ( RFIL Quick Quote RFIL - Free Report) . Industry Description
The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide Radio Frequency solutions, Front-end Modules, low-noise amplifiers, diodes, multi-chip modules, optical components, surface acoustic wave, bulk acoustic wave technology-based antenna-plexers, and film bulk acoustic resonator filters to enable smartphone devices to function more efficiently in congested RF spectrum. They serve a wide array of industries with their solutions finding ample application in 5G and smartphone equipment, aerospace and defense, optical networks, cellular base stations, automotive and smart home applications. Most of these companies utilize robust wafer fabrication technologies as well as ZigBee, Bluetooth Low Energy, Thread, silicon germanium and Gallium Nitride technologies to stay ahead of competition.
3 Trends Influencing the Prospects of the Semiconductors - RF Industry
: The rapid implementation of 5G networking infrastructure and robust adoption of cloud computing applications hold promise for the wireless communication market. The coronavirus crisis-induced work-from-home wave has necessitated the need for higher bandwidth and triggered LTE advancements, which are expected to bolster demand for RF power amplifiers. Increasing RF content in the latest 5G smartphones is a key catalyst. Moreover, demand recovery in the smartphone market is likely to aid the prospects of major industry players. 5G smartphone shipments are projected to account for more than 60% of global volume in 2022, per IDC estimates. Accelerated Deployment of 5G is a Tailwind : The rapid proliferation of IoT, wearables, drones, VR/AR devices, autonomous cars, and ADAS is expected to drive demand for RF semiconductor products beyond smartphone devices, which favors industry prospects. Notably, RF Semiconductors are setting the pace for technology modernization, consequently digitizing aspects like connectivity, healthcare, transport and defense, among others. Diversified utilization of RF Semiconductor products bodes well for the industry players. Moreover, the evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm and even 5 nm and 3 nm technology is anticipated to bolster the industry’s prospects. Further, the roll-out of new bands and band combinations has led to considerable design challenges for OEM smartphone manufacturers. The industry participants are looking to address these challenges with a robust range of antenna-plexers portfolios utilizing the BAW technology. Innovation is Opening Up New Business Avenues : The industry players are reeling under the impacts of supply-chain constraints as well as the negative impact of the ongoing Russia-Ukraine war. Additionally, volatility in prices of certain commodities like copper doesn’t bode well for industry participants. Moreover, the lingering impact of COVID-induced lockdowns in China (particularly Shanghai) increases uncertainty. Markedly, the industry players generate a significant portion of their revenues from China. Supply Chain and Higher Commodity Cost to Hinder Prospects Zacks Industry Rank Indicates Dim Near-Term Prospects
The Zacks Semiconductors - Radio Frequency Industry is housed within the broader Zacks
Computer and Technology sector. It carries a Zacks Industry Rank #173, which places it at the bottom 31% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimate for 2022 has moved down 22% since Aug 31, 2021. Despite the gloomy outlook, there are a couple of stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first. Industry Lags S&P 500 & Sector
The Zacks Semiconductors - Radio Frequency Industry has underperformed the S&P 500 and its sector over the past year.
One Year Price Performance
The industry has declined 38.8% over this period against the S&P 500’s decline of 3.3% and the broader sector’s drop of 16.8%.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing Semiconductors - Radio Frequency stocks, the industry is currently trading at 11.41X, lower than the S&P 500’s 18.63X and the sector’s 23.44X.
Over the past five years, the industry has traded as high as 23.62X and as low as 8.89X, with the median being at 13.98X, as the charts below show. Forward 12-Month P/E Ratio
2 Radio Frequency Stocks to Keep a Close Eye on
RF Industries: This Zacks Rank #3 (Hold) company is riding on strong demand for its RF coaxial cable and connector products and C-Enterprises faster and fiber products as well as Optiflex hybrid fiber solutions. Growing demand for wireless carrier infrastructure builds for 5G is a tailwind for RF Industries. Increased spending from carriers deploying 5G bodes well for RFIL. The acquisition of Microlab is contributing meaningfully to RF Industries top-line growth. RF Industries’ shares have dropped 8.7% year to date. The Zacks Consensus Estimate for RF Industries’ fiscal 2022 bottom line is pegged at 48 cents per share, unchanged over the past month. Price and Consensus: RFIL
Skyworks Solutions: This Zacks Rank #3 company is benefiting from accelerated 5G deployment and increasing demand for Wi-Fi 6 solutions. Broad markets benefited from strong demand for the company’s solutions for automotive, industrial, data center and network infrastructure end-markets. Skyworks’ solutions are now being used by the likes of Cisco, Orange, Verizon and Google. Skyworks’ Sky5 product portfolio facilitates several 5G smartphone launches and its offerings have been selected by Samsung and Google. Skyworks’ diversified portfolio positions it well to capitalize on momentum witnessed across driverless vehicle providers as well as high-power industrial and IoT applications. Shares of Skyworks have declined 28.2% year to date. The Zacks Consensus Estimate for Skyworks’ fiscal 2022 earnings has increased 0.9% to $11.11 per share over the past 30 days. Price and Consensus: SWKS