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 players 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 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 in a bid to stay ahead of the curve.
Here are the three major themes in the industry:
- The industry players are reeling under the impact of the coronavirus crisis-induced macroeconomic woes. The coronavirus crisis led lockdowns compelled semiconductor companies to shut down production facilities temporarily, which has raised concerns regarding the industry’s prospects. The supply chain has been disrupted by social distancing and shelter-in-place restrictions owing to the ongoing pandemic, which in turn has severely impacted these companies. Although economies are gradually reopening in several parts of the world, production delays remain a concern. Moreover, the U.S.-China trade war induced tariffs and Huawei ban have been hindering growth of the industry participants for quite some time now. Markedly, the industry players generate significant portion of their revenues from China. Additionally, the rumored delay of iPhone 12 is anticipated to negatively impact top-line performance of both Qorvo (QRVO - Free Report) and Skyworks (SWKS - Free Report) , at least in the near term. Notably, both the companies derive significant revenues from Apple (AAPL - Free Report) , which is bearing the brunt of the coronavirus outbreak led supply constraints.
- Nevertheless, accelerated deployment of 5G and robust adoption of cloud computing applications hold promise considering the wireless communication market. Coronavirus crisis-induced work-from-home wave has necessitated the need for higher bandwidth and triggered LTE advancements, which are anticipated to bolster demand for RF power amplifiers. Moreover, innovation in consumer electronic market, particularly the smartphone market, is likely to aid industry prospects. We believe prominent industry players, including Qorvo, Skyworks, Resonant (RESN - Free Report) and Akoustis (AKTS - Free Report) are well poised to gain from this demand. In fact, IDC estimates that coronavirus crisis-induced shift in consumer spending patterns toward lesser mobile devices is likely to lead to aggressively priced 5G smartphones. This is anticipated to accelerate the democratization of 5G smartphones and boost prospects of the industry players.
- Rapid proliferation of IoT, wearables, drones, VR/AR devices, autonomous cars, and ADAS is expected to bolster the 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, 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 bodes well for the industry players. Moreover, evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm and even 5 nm technology is expected to bolster the industry’s prospects.
Zacks Industry Rank Indicates Bleak 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 #190, which places it at the bottom 25% 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 weak 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 add to watchlist, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Semiconductors - Radio Frequency Industry has outperformed both the S&P 500 and its own sector in the past year.
One Year Price Performance
The industry has gained 49.4% over this period compared with the S&P 500’s and broader sector’s growth of 26.3% and 7.2%, respectively.
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 23.61X, higher than the S&P 500’s 22.48X but lower the sector’s 26.05X.
Over the past five years, the industry has traded as high as 23.61X and as low as 10.01X, with the median being at 12.67X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
Growing proliferation of IoT, ADAS, AR/VR are driving the demand for RF semiconductor products. Further, coronavirus crisis-induced work-form-home wave is expected to accelerate deployment of 5G, which favors the industry’s prospects.
However, the industry is currently grappling with apprehensions regarding the second wave of COVID-19.
None of the stocks in the Semiconductors - Radio Frequency industry currently sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nevertheless, we present three stocks with a Zacks Rank #3 (Hold) that investors may currently keep a tab on.
Qorvo stock has gained 63.9% in the past year. Notably, Zacks Consensus Estimate for fiscal 2021 earnings for the Greensboro, NC-based company has improved by a penny to $5.57 per share over the past 30 days.
Price and Consensus: QRVO
Shares of Skyworks have returned 66.7% in the past year. Moreover, the Irvine, CA-based company has a trailing four-quarter positive earnings surprise of 0.98%, on average.
Price and Consensus: SWKS
Huntersville, NC-based Akoustis has returned 43% in the past year. The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at loss of 87 cents per share over the past 60 days, narrower than the year ago reported loss of $1.06.
Price and Consensus: AKTS