A global semiconductor shortage has caused production bottlenecks in multiple industries, including consumer electronics, technology, networking, and automotive. Given the heightened demand for microprocessors amid a remote lifestyle and global digital transformation, governments around the world have been investing heavily to boost production.
The U.S. Senate approved $52 billion federal investment in the domestic semiconductor market under the CHIPS for America Act on June 8. In a similar vein, the European Commission outlined its plans in March to double the EU’s share of global chip manufacturing to account for 20% of the global output by 2030.
Global semiconductor sales have risen 29.2% year-over-year to $133.60 billion in the second quarter, ended June 30, 2021. Furthermore, the semiconductor industry is expected to become one of the most crucial industries over the long term due to its universal applications.
Thus, we think investors should capitalize on the recent price decline in fundamentally sound semiconductor stocks Semtech Corporation (SMTC), Himax Technologies, Inc. (HIMX), and Alpha and Omega Semiconductor Limited (AOSL).
Semtech Corporation (SMTC)
SMTC in Camarillo, Calif., is a leading manufacturer of mixed-signal semiconductors and advanced algorithms. Its products have applications in communications, enterprise computing, and industrial markets. The company sells its products to original equipment manufacturers and suppliers across the United States, Europe, and Asia.
On August 19, SMTC collaborated with New Zealand-based Internet of Things (IoT) company IQnexus to develop indoor air and environment quality sensors integrated with Semtech chips. Given the rising demand for indoor sensors, this partnership should boost SMTC’s revenues substantially.
Also this month, SMTC partnered with IoT company Oxit to develop solutions for intelligent energy initiatives. The agreement reflects SMTC’s commitment to facilitate its LPWAN connectivity’s growth.
SMTC’s net sales increased 28.4% year-over-year to $170.37 million in its fiscal first quarter, ended May 2. Its operating income increased 77.4% year-over-year to $27.97 million, while net income improved 144% year-over-year to $23.50 million. The company’s EPS increased 140% from its year-ago value to $0.15.
A $2.43 consensus EPS estimate for the current year indicates a 38.9% increase from its year-ago value. The $725.41 million consensus revenue estimate for the current year indicates a 21.9% improvement from the same period last year. SMTC has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters.
The stock has declined 12.1% in price year-to-date to close Friday’s trading session at $63.40. However, SMTC has recovered slightly to gain 4.3% over the past month.
SMTC’s POWR Ratings reflect this promising outlook. It has an overall B rating, which translates 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.
SMTC has a B grade for Growth, Momentum, Sentiment, and Quality. Within the 99 stocks in the B-rated Semiconductor & Wireless Chip industry, it is ranked #14.
Click here to see additional SMTC ratings for Value and Stability.
Himax Technologies, Inc. (HIMX)
HIMX manufactures fabless semiconductors, display driver integrated circuits, and timing controllers used in various electronic devices, automobiles, and Virtual Reality (VR) devices. The company’s headquarters are in Tainan, Taiwan.
On July 15, HIMX sponsored the tinyML Vision Challenge to boost tinny computer vision technology development in the developer community. Though the company will not receive direct monetary benefits, this investment should accelerate the growth of leading-edge ultralow-power machine learning, resulting in disruptive innovations.
On May 19, the company launched Liquid Crystal on Silicon (LCoS) technology, phase modulation LCoS. Regarding this, HIMX President and CEO Jordan Wu said, “AR HUD will be one of the next key features in automotive. Himax’s phase modulation LCoS enables multi-focal holographic displays in automotive AR HUD and will disrupt the common standard of HUD today. Meanwhile, with the proliferation of 5G, our proposed WSS system, where our phase modulation LCoS is the heart of the system, is well-positioned to offer higher data bandwidth to the communication backbone.”
In the second quarter, ended June 30, HIMX’s revenue increased 95.3% year-over-year to $365.26 million. Its non-IFRS operating income increased 8,047.5% from the same period last year to $134.03 million. Its net income rose 1,1374.4% from the prior-year quarter to $108.32 million. And its earnings per ADS stood at $0.623, reflecting a 7,687.5% improvement from the year-ago value.
A $2.70 consensus EPS estimate for its fiscal year 2021 indicates an 800% improvement from the same period last year. Likewise, the $1.51 billion consensus revenue estimate for the current year reflects a 70.3% rise year-over-year. Furthermore, HIMX has an impressive earnings surprise history; it topped consensus EPS estimates in each of the trailing four quarters. Shares of HIMX have declined 10.7% in price over the past month and 5.5% over the past five days.
It’s no surprise that HIMX has an overall rating of B, which translates to Buy in our POWR Ratings system. In addition, the stock has an A grade for value, and a B grade for Growth and Momentum. It is ranked #43 in the Semiconductor & Wireless Chip industry.
In total, we rate HIMX on eight different levels. In addition to what we have stated above, we have rated the stock for Stability, Sentiment, and Quality. Get all the HIMX ratings here.
Alpha and Omega Semiconductor Limited (AOSL)
AOSL is a worldwide supplier of diversified power semiconductors for consumer electronics and computing, communications, and industrial markets. It manufactures two types of semiconductors – power discretes and power integrated circuits. AOSL is based in Sunnyvale, Calif.
On August 18, AOSL unveiled a dual multiphase controller for its AOS Digital Controller product portfolio. As the industry’s most flexible controller, this product is expected to be widely used in 5G telecom, optical communication, and networking industries.
On June 8, AOSL launched two new single-channel Transient Voltage Suppressors (TVS). These have applications in Type-C USB connectors. As Type-C connectors rapidly replace traditional USBs, AOSL’s products are expected to be widely demanded by consumer electronics manufacturers.
In its fiscal fourth quarter, ended June 30, AOSL’s revenue increased 44.9% year-over-year to $177.30 million. The company’s non-GAAP operating income rose 246.4% from its year-ago value to $29.10 million. Its gross margin improved 740 basis points to 34.9%. Its non-GAAP net income attributable to AOSL came in at $26.30 million, up 255.4% from the same period last year to $26.30 million. And its non-GAAP EPS improved 227.6% from the prior-year quarter to $0.95.
Analysts expect AOSL’s EPS to come in at $0.95 in its fiscal first quarter (ending September 2021), indicating a 72.7% rise year-over-year. The company’s revenue is expected to improve 18.8% from the same period last year to $180 million in the current quarter. In addition, AOSL surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, AOSL has declined 31.9% in price, to close Friday’s trading session at $25.82. However, the stock has recovered marginally over the past month.
AOSL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. In addition, AOSL has an A grade for value, and a B grade for Growth, Momentum, and Sentiment. Moreover, it is ranked #25 in the Semiconductor & Wireless Chip industry.
Click here to see additional POWR Ratings for AOSL (Stability and Quality).
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SMTC shares were trading at $64.46 per share on Monday morning, up $1.06 (+1.67%). Year-to-date, SMTC has declined -10.58%, versus a 20.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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