The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide Radio Frequency (RF) solutions, Front-end Modules (FEMs), low-noise amplifiers, diodes, multi-chip modules (MMICs) and optical components. The industry participants also offer surface acoustic wave (SAW), bulk acoustic wave (BAW) and film bulk acoustic resonator (FBAR) filters, to enable smartphone devices to function more efficiently in congested RF spectrum.
The industry participants 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.
The industry players utilize robust wafer fabrication technologies to gain competitive edge over peers. The companies also leverage ZigBee, Bluetooth Low Energy (BLE), Thread, silicon germanium and Gallium Nitride (GaN) technologies across their portfolio to stay ahead of the curve.
Here are the three major themes in the industry:
- Accelerated deployment of 5G and robust adoption of cloud computing applications holds promise considering wireless communication market. Rise in uptake for higher bandwidth and LTE advancements are expected to bolster demand for RF power amplifiers. Moreover, innovation in consumer electronic market, particularly the smartphone market, is likely to aid the industry prospects. We believe prominent industry players, including Qorvo (QRVO - Free Report) , Skyworks (SWKS - Free Report) , Resonant (RESN - Free Report) and Akoustis (AKTS - Free Report) are well poised to gain from this demand. In fact, IDC is optimistic about the growing deployment of 5G technology. The research firm projects 5G shipments to be 8.9% of smartphones shipped in 2020, accounting for 123.5 million devices shipped. IDC forecasts worldwide smartphone shipments to scale to 28.1% by 2023.
- Rapid proliferation of IoT, wearables, drones, VR/AR devices, autonomous cars, and ADAS is driving the demand for RF semiconductor products beyond smartphone devices, which favors the industry prospects. Notably, RF Semiconductors are setting the pace for technology modernization, consequently digitizing aspects like connectivity, healthcare, transport, defense, among others. For instance, Qorvo is gaining from rapid adoption of GaN for high-power defense applications and emerging healthcare applications. Diversified utilization of RF Semiconductor products augurs well for the industry players.
- Nonetheless, the ongoing trade U.S.-China Trade war has created an uncertain environment, which does not bode well for industry participants at least in the near term. Notably, the industry participants generate significant portion of their revenues from China. As the direct revenue sources are under the purview of tariffs, there has been an escalation in concerns regarding the industry prospects. Particularly, the US government's banning of Huawei limits business prospects of Qorvo and Skyworks.
Zacks Industry Rank Indicates Bright 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 #47, which places it at the top 19% 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 bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio given the positive backdrop, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Semiconductors - Radio Frequency Industry has underperformed both the S&P 500 and its own sector in the past year.
The industry has gained 6.1% over this period against the S&P 500’s and broader sector’s growth of 16.2% and 14.5%, respectively.
One Year Price Performance
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 15.75X, lower than the S&P 500’s 17.34X and the sector’s 20.48X.
Over the past five years, the industry has traded as high as 18.82X and as low as 10.01X, with the median being at 12.94X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Forward 12-Month Price-to-Earnings (P/E) Ratio
Growing proliferation of IoT, ADAS, AR/VR, are driving the demand for RF semiconductor products. Further, anticipated recovery in smartphone market amid accelerated deployment of 5G favors the prospects of the industry players.
Here, we present two stocks that have a Zacks Rank #2 (Buy) that investors may consider.
These stocks are well positioned to grow in the near term.
Huntersville, NC-based Akoustis has returned 133.6% in the past year. The Zacks Consensus Estimate for fiscal 2020 earnings has remained unchanged at a loss of 90 cents per share over the past 30 days.
Price and Consensus: AKTS
Skyworks stock has returned 9.4% in the past year. Moreover, the consensus estimate for fiscal 2019 earnings for the Woburn, MA-based company has been steady at $6.15 over the past 30 days.
Price and Consensus: SWKS
We are also presenting one stock with a Zacks Rank #3 (Hold) that investors may want to keep a tab on.
Qorvo stock has gained 12.5% in the past year. Notably, the consensus estimate for fiscal 2020 earnings for the Greensboro, NC-based company has declined 0.4% to $5.10 over the past 30 days.
Price and Consensus: QRVO