The increasing need for efficient tech products and solutions from several industries has fueled the growth of semiconductor sales. The global semiconductor industry generated $43.60 billion in sales in May 2021, up 26.2% year-over-year. Semiconductor sales, as reported by The Semiconductor Industry Association, on a three-month moving basis as of May were higher than any previous month in the market’s history, indicating improving semiconductor production.
Favorable government policies and private investments to address a global semiconductor shortage have helped the industry achieve this significant improvement in sales. The worldwide semiconductor market is expected to grow 19.7% in 2021 to hit $527 billion. As such, we believe fundamentally sound semiconductor stocks Applied Materials, Inc. (AMAT) and Himax Technologies Inc. (HIMX) will be able to cash in on the improving supply conditions.
However, supplies have not yet caught up with the current demand levels. And because the global supply is expected to remain under pressure in the near term, we think fundamentally weak companies Marvell Technology Group Ltd. (MRVL) and Cree, Inc. (CREE) might struggle to stay afloat.
Click here to checkout our Semiconductor Industry Report for 2021
Stocks to Buy:
Applied Materials, Inc. (AMAT)
AMAT provides material engineering solutions for making semiconductor chips to electronic manufacturers, flat panel displays and solar photovoltaic cells and modules. The company also supplies equipment to produce coatings for flexible electronics, packaging and other applications. AMAT is based in Santa Clara, Calif.
On June 16, AMAT unveiled a new materials engineering solution called the Endura Copper Barrier Seed IMS. It integrates seven process technologies in one system under high vacuum, enabling logic scaling to the 3nm node and beyond. As interconnect wiring consumes one third of a chip’s power, this breakthrough ensures that resistance is cut by 50%, and its improved chip performance, lower power consumption and longer battery life should help AMAT generate great demand in the coming months.
On May 5, AMAT introduced Draco, a new hard disk material co-optimized to work with AMAT’s Sym3 Y etcher that gives its memory customers three new ways to further scale DRAM and accelerate improvements in chip performance, power, area, cost and time to market (PPACt). Because the rapid digital transformation is creating demand for efficient storage solutions, such breakthroughs in DRAM, enabling it to operate at higher speeds and with less power, should enable AMAT to expand its market reach.
AMAT’s net sales for its fiscal second quarter, ended May 2, 2021, increased 41.1% year-over-year to $5.58 billion. The company’s non-GAAP gross profit has been reported at $2.67 billion, up 50.8% from the prior-year period. Its non-GAAP operating income came in at $1.77 billion, which represents an 81.1% rise year-over-year. While its net income increased 84.7% year-over-year to $1.51 billion, its non-GAAP EPS increased 83.1% year-over-year to $1.63. The company had $6.31 billion in cash and cash equivalents as of May 2, 2021.
A $1.78 consensus EPS estimate for the current quarter, ending July 31, 2021, represents a 67.7% improvement year-over-year. AMAT surpassed the Street’s EPS estimates in each of the trailing four quarters. The $5.92 billion consensus revenue estimate for the current quarter represents a 34.7% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 24.9% rate per annum over the next five years. The stock has gained 111.5% over the past nine months and closed yesterday’s trading session at $136.80.
AMAT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality and Momentum. Click here to see the additional ratings for AMAT (Growth, Value, Stability, and Sentiment).
AMAT is ranked #35 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry.
Himax Technologies Inc. (HIMX)
Headquartered in Taiwan, HIMX is a semiconductor solution provider that manufactures display driver integrated circuits, digital camera solutions and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, virtual reality (VR) devices and many other consumer electronics devices.
On May 19, 2021, HIMX unveiled its latest phase modulation liquid crystal on silicon (LCoS) technology that will be used for AR Head-Up Display (AR HUD) and Wavelength Selective Switch (WSS) applications in automotive and communication industries. With AR HUD, using holographic display offers an intuitive multi-focal plane viewing experience and WSS triggers flexible high-bandwidth data manipulation, HIMX is expected to generate good sales in the near-term.
HIMX and CM Visual Technology Corp. (CMVT), a Taiwan-based company that designs and manufactures microstructure optical film, jointly announced their microstructure optical film, Omniwide Film, for resolving optical display performance challenges in certain types of display panel applications. Joining HIMX since October 2020 has enabled CMVT’s Omniwide Film to receive greater recognition from leading TV brands and designed-in automotive panel platforms.
HIMX’s net sales for its fiscal first quarter, ended March 31, 2021, increased 67.4% year-over-year to $309 million. The company’s gross profit has been reported at $124.28 million, up 196.5% from the prior-year period. Its operating income came in at $84.80 million for the quarter, which represents a 1724.8% year-over-year improvement. HIMX’s net profit increased 1930.8% year-over-year to $66.90 million. Its earnings per ADS increased 1915.8% year-over-year to $0.38. The company had $227.38 million in cash and cash equivalents as of March 31, 2021.
Analysts expect the stock’s EPS to increase 460.6% year-over-year for the current quarter, ending September 30, 2021, to $0.41. The stock surpassed consensus EPS estimates in each of the trailing four quarters. The $365.90 million consensus revenue estimate for the current quarter represents a 52.5% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 1.9% rate per annum over the next five years. The stock has gained 311.5% over the past nine months to end yesterday’s trading session at $15.39.
HIMX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Growth and Value. We have also graded HIMX for Stability, Quality, Sentiment, and Momentum. Click here to access all HIMX ratings.
HIMX is ranked #26 in the Semiconductor & Wireless Chip industry.
Stocks to Avoid:
Marvell Technology Group Ltd. (MRVL)
MRVL is a semiconductor manufacturer that offers a security and networking platform, secure data processing, networking, and storage solutions. It designs, develops, and sells analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits, and a portfolio of Ethernet solutions. MRVL is based in Hamilton, Bermuda.
On June 28, MRVL introduced its new OCTEON 10 DPU, which is designed to accelerate and process a broad spectrum of security, networking, and storage workloads required by demanding 5G, cloud, carrier and enterprise datacenter applications. Delivering three times the performance and 50% lower power consumption compared to its previous generations, MRVL’s expects to generate good sales with this product in the near-term.
For its fiscal first quarter, ended May 1, 2021, MRVL’s total non-GAAP operating expenses increased 2.2% year-over-year to $306.27 million. As of May 1, 2021, the company had $522.51 million in cash and cash equivalents. The stock closed yesterday’s trading session at $57.33.
MRVL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
The stock has a D grade for Value and Quality. Click here to see the additional ratings for MRVL (Growth, Sentiment, Stability, and Momentum).
MRVL is ranked #87 in the Semiconductor & Wireless Chip industry.
Cree, Inc. (CREE)
Durham, N.C.-based CREE provides lighting-class LEDs and semiconductor products for power and radio-frequency (RF) applications worldwide.
On June 23, CREE and MaxLinear, Inc. (MXL), a leading provider of radio frequency (RF), analog, digital and mixed-signal integrated circuits, announced breakthrough performance in combining MXL’s ultra-wideband linearization solution (MaxLin) and CREE’s Wolfspeed Gallium Nitride (GaN) on SiC mid-band power amplifiers. Maintaining a reasonable size, weight, and power, the new solution increases the wireless capacity of a 5G base station, supporting more simultaneous users and increasing the speed of data transmissions. Both the companies are looking forward to a long-term partnership.
However, its financial prospects are not promising. CREE’s non-GAAP operating loss for its fiscal third quarter ended March 28, 2021, increased 19.4% year-over-year to $32 million. The company’s non-GAAP net loss came in at $24.70 million, up 34.2% from the prior-year period. Its non-GAAP loss per share increased 29.4% year-over-year to $0.22. The company had $531.60 million in cash and cash equivalents, as of March 28, 2021.
For the current quarter, ending September 30, 2021, analysts expect CREE’s revenue to be $153.36 million, representing a 29.2% year-over-year decline. CREE’s EPS is expected to remain negative in the coming quarters of the current year. Analysts expect the stock’s EPS to decline at a 33.6% rate per annum over the next five years. CREE has lost 21% over the past nine months to end yesterday’s trading session at $95.28.
It’s no surprise that CREE has an overall F rating, which equates to Strong Sell in our POWR Ratings system.
The stock has an F grade for Growth, Value, Sentiment, and Quality, and a D grade for Stability. To see the additional ratings for CREE’s Momentum, click here.
CREE is ranked #99 in the Semiconductor & Wireless Chip industry.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in CREE for a 47% gain. Learn more about the RTR service here.
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AMAT shares were trading at $136.29 per share on Tuesday afternoon, down $0.51 (-0.37%). Year-to-date, AMAT has gained 58.50%, versus a 17.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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