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3 Important Points From IDC Semiconductor Forecast & 4 Picks
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There were three encouraging points in IDC’s latest global semiconductor sales forecast for 2021.
First, the research firm now expects global semiconductor sales to grow 17.3% in 2021, on top of the 10.8% growth in 2020. The end markets driving this strength are mobile phones, notebooks, servers, automotive, smart home, gaming, wearables and Wi-Fi access points.
5G is clearly the main driver of semi revenues into the mobile phone market. So that segment is expected to grow 128%, with total mobile semiconductor revenues up 28.5%. And that’s still stronger than X86 server chips, which will see revenue growth of 24.6%. Sales into the notebook market will be up 11.8% while game consoles, smart home, and wearable semis will grow a respective 34%, 20% and 21%. And automotive semiconductor revenues will increase 22.8%.
Which brings us to the second important takeaway. IDC expects the shortages in the auto market to be mitigated by year-end. We all know how crazy that has been. That has been a major factor holding back the sector, caught in between soaring demand and depleted inventory.
Overall, the firm sees front-end manufacturing beginning to meet consumption (which is healthy despite the COVID scare) in the third quarter as foundries step in to fill gaps, but cautions that back-end constraints and material shortages remain. The market is currently not expected to normalize until the middle of 2022 with the possibility of overcapacity by year-end as new fabs come online. Still, the semiconductor market will grow at a CAGR of 5.3% through 2025, which is a good bit stronger than the typical 3-4% growth historically.
And third, semiconductor wafer prices increased in the first half of 2021, with further increases in the cards, driven by increased material cost and opportunity cost at mature processes. So stronger pricing and much higher volumes will generate bigger gains for players.
MaxLinear is a fabless company that designs products incorporating radio frequency (RF), high-performance analog, mixed-signal, digital signal processing (DSP), security engines, data compression and networking layers, and power management for high-speed communication systems.
Its communications systems-on-chip (SoC) solutions are used in broadband (51% revenue share in 2020), mobile and wireline infrastructure (16%), connectivity (15%), and industrial and other multi-market (18%) applications.
The company has been taking share and growing its silicon content in the broadband segment, as its customers upgrade their infrastructure to support bandwidth-intensive services and accommodate a swelling subscriber base. Supply constraints are expected to improve in the fourth quarter and management expects continued share gains over the next several years.
Overall, its new product pipeline, design win momentum, strategic agreements, lean channel inventories and strong demand should drive continued strength in bookings and sales.
Analysts are also highly optimistic about this company. They currently expect its earnings to grow 169.3% in 2021 and 16.2% in 2020 on the back of revenue growth of 80.3% and 10.4%, in the two years, respectively.
The Zacks Rank #1 (Strong Buy) stock is trading at 19.6X P/E, well below the median value of 30.0X over the past year and the S&P 500’s 21.4X.
Semtech is a global supplier of high-performance analog and mixed-signal semiconductors and advanced algorithms. The end applications for its products are in the infrastructure (data centers, passive optical networks, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network and other communication infrastructure equipment), high-end consumer (smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment) and industrial (Internet of Things ("IoT"), analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, military and aerospace, medical, security systems, automotive, industrial and home automation and other industrial equipment) markets.
In its 2021 fiscal year ending January, its end market exposure was as follows: Enterprise Computing (31% revenue share), Industrial and Other (26%), High-End Consumer (26%) and Communications (18%).
The company is seeing strong momentum in the business with design win momentum, platform strength, growing bookings, and a book-to-bill above 1. Moreover, there is huge demand on the horizon with 5G demand coming out of China as well as buildouts in North America and Europe.
A favorable product mix is also driving the gross margin.
The Zacks Rank #1 stock is trading at 28.7X P/E, which is not cheap per se but below its median level of 46.0X over the past year. Given its growth prospects (45.7% earnings growth in the current year on revenue growth of 23.6%, followed by 19.5% earnings growth next year on revenue growth of 10.2%) and estimate revision trend, shares are only likely to move higher.
The company is an original equipment manufacturer of analog, mixed signal and digital signal processing (DSP) integrated circuits.
Its end market exposure is as follows: Industrial applications in instrumentation, defense/aerospace, energy management and healthcare comprises a 53% share; internet infrastructure, broadband and wireless applications making up the communications segment accounts for another 21%; infotainment, electrification, autonomous, ADAS and safety applications in automotive comprise 14% and feature-rich portable devices and prosumer video/audio equipment in consumer accounting for the rest.
ADI is seeing strength in consumer, industrial and automotive end-markets and design win momentum. Its acquisition of Maxim will expand its TAM in these markets as well as in communications (5G) while adding to its bottom line this year.
The 30.6% earnings growth in its fiscal year ending October is expected to come off revenue growth of 29.9%. Revenue growth is expected to accelerate the following year to 40.6% with earnings growth decelerating to 12.8%.
At 24.9X earnings, the shares of this Zacks Rank #2 (Buy) stock are close to its median value of 24.8X over the past year. But given the strong momentum in its business, buying the shares still makes sense.
The company offers high performance mixed signal and standard product solutions leveraging RF, analog, power management, interface, security and digital processing technologies for application in the automotive, wireless infrastructure, lighting, industrial, mobile, consumer and computing markets.
NXP has significant exposure to the automotive end market, which accounted for 44% of its revenue in 2020 and fairly broad exposure to other markets: Industrial & IoT and Communication Infrastructure & Others generated 21% each of its revenue last year while the mobile end market accounted for 14%.
The company is currently expected to grow its revenue by 26.7% this year and 6.9% next year. Earnings are expected to grow 31.3% and 10.5%, respectively, in the two years.
The Zacks Rank #2 stock trades at a 19.5X P/E, which is below its median level of 23.5X over the past year as well as the S&P 500’s 21.4X. So valuation supports buying the shares.
One-Month Price Perfornance
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3 Important Points From IDC Semiconductor Forecast & 4 Picks
There were three encouraging points in IDC’s latest global semiconductor sales forecast for 2021.
First, the research firm now expects global semiconductor sales to grow 17.3% in 2021, on top of the 10.8% growth in 2020. The end markets driving this strength are mobile phones, notebooks, servers, automotive, smart home, gaming, wearables and Wi-Fi access points.
5G is clearly the main driver of semi revenues into the mobile phone market. So that segment is expected to grow 128%, with total mobile semiconductor revenues up 28.5%. And that’s still stronger than X86 server chips, which will see revenue growth of 24.6%. Sales into the notebook market will be up 11.8% while game consoles, smart home, and wearable semis will grow a respective 34%, 20% and 21%. And automotive semiconductor revenues will increase 22.8%.
Which brings us to the second important takeaway. IDC expects the shortages in the auto market to be mitigated by year-end. We all know how crazy that has been. That has been a major factor holding back the sector, caught in between soaring demand and depleted inventory.
Overall, the firm sees front-end manufacturing beginning to meet consumption (which is healthy despite the COVID scare) in the third quarter as foundries step in to fill gaps, but cautions that back-end constraints and material shortages remain. The market is currently not expected to normalize until the middle of 2022 with the possibility of overcapacity by year-end as new fabs come online. Still, the semiconductor market will grow at a CAGR of 5.3% through 2025, which is a good bit stronger than the typical 3-4% growth historically.
And third, semiconductor wafer prices increased in the first half of 2021, with further increases in the cards, driven by increased material cost and opportunity cost at mature processes. So stronger pricing and much higher volumes will generate bigger gains for players.
Semiconductor stocks worth buying today are-
MaxLinear, Inc (MXL - Free Report)
MaxLinear is a fabless company that designs products incorporating radio frequency (RF), high-performance analog, mixed-signal, digital signal processing (DSP), security engines, data compression and networking layers, and power management for high-speed communication systems.
Its communications systems-on-chip (SoC) solutions are used in broadband (51% revenue share in 2020), mobile and wireline infrastructure (16%), connectivity (15%), and industrial and other multi-market (18%) applications.
The company has been taking share and growing its silicon content in the broadband segment, as its customers upgrade their infrastructure to support bandwidth-intensive services and accommodate a swelling subscriber base. Supply constraints are expected to improve in the fourth quarter and management expects continued share gains over the next several years.
Overall, its new product pipeline, design win momentum, strategic agreements, lean channel inventories and strong demand should drive continued strength in bookings and sales.
Analysts are also highly optimistic about this company. They currently expect its earnings to grow 169.3% in 2021 and 16.2% in 2020 on the back of revenue growth of 80.3% and 10.4%, in the two years, respectively.
The Zacks Rank #1 (Strong Buy) stock is trading at 19.6X P/E, well below the median value of 30.0X over the past year and the S&P 500’s 21.4X.
Semtech Corporation (SMTC - Free Report)
Semtech is a global supplier of high-performance analog and mixed-signal semiconductors and advanced algorithms. The end applications for its products are in the infrastructure (data centers, passive optical networks, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network and other communication infrastructure equipment), high-end consumer (smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment) and industrial (Internet of Things ("IoT"), analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, military and aerospace, medical, security systems, automotive, industrial and home automation and other industrial equipment) markets.
In its 2021 fiscal year ending January, its end market exposure was as follows: Enterprise Computing (31% revenue share), Industrial and Other (26%), High-End Consumer (26%) and Communications (18%).
The company is seeing strong momentum in the business with design win momentum, platform strength, growing bookings, and a book-to-bill above 1. Moreover, there is huge demand on the horizon with 5G demand coming out of China as well as buildouts in North America and Europe.
A favorable product mix is also driving the gross margin.
The Zacks Rank #1 stock is trading at 28.7X P/E, which is not cheap per se but below its median level of 46.0X over the past year. Given its growth prospects (45.7% earnings growth in the current year on revenue growth of 23.6%, followed by 19.5% earnings growth next year on revenue growth of 10.2%) and estimate revision trend, shares are only likely to move higher.
Analog Devices, Inc. (ADI - Free Report)
The company is an original equipment manufacturer of analog, mixed signal and digital signal processing (DSP) integrated circuits.
Its end market exposure is as follows: Industrial applications in instrumentation, defense/aerospace, energy management and healthcare comprises a 53% share; internet infrastructure, broadband and wireless applications making up the communications segment accounts for another 21%; infotainment, electrification, autonomous, ADAS and safety applications in automotive comprise 14% and feature-rich portable devices and prosumer video/audio equipment in consumer accounting for the rest.
ADI is seeing strength in consumer, industrial and automotive end-markets and design win momentum. Its acquisition of Maxim will expand its TAM in these markets as well as in communications (5G) while adding to its bottom line this year.
The 30.6% earnings growth in its fiscal year ending October is expected to come off revenue growth of 29.9%. Revenue growth is expected to accelerate the following year to 40.6% with earnings growth decelerating to 12.8%.
At 24.9X earnings, the shares of this Zacks Rank #2 (Buy) stock are close to its median value of 24.8X over the past year. But given the strong momentum in its business, buying the shares still makes sense.
NXP Semiconductors N.V. (NXPI - Free Report)
The company offers high performance mixed signal and standard product solutions leveraging RF, analog, power management, interface, security and digital processing technologies for application in the automotive, wireless infrastructure, lighting, industrial, mobile, consumer and computing markets.
NXP has significant exposure to the automotive end market, which accounted for 44% of its revenue in 2020 and fairly broad exposure to other markets: Industrial & IoT and Communication Infrastructure & Others generated 21% each of its revenue last year while the mobile end market accounted for 14%.
The company is currently expected to grow its revenue by 26.7% this year and 6.9% next year. Earnings are expected to grow 31.3% and 10.5%, respectively, in the two years.
The Zacks Rank #2 stock trades at a 19.5X P/E, which is below its median level of 23.5X over the past year as well as the S&P 500’s 21.4X. So valuation supports buying the shares.
One-Month Price Perfornance
Image Source: Zacks Investment Research