Despite the supply chain issues caused by U.S.-China tensions, the semiconductor industry continues to grow considerably to meet the rising demand for chips to advance emerging technologies, such as artificial intelligence (AI), autonomous driving, the internet of things, and 5G.
The industry’s expansion is also expected to be driven by the growing need for faster and more advanced memory chips in industrial applications. Overall, the demand for semiconductors is rising rapidly across all industry verticals due to increased industrial automation, consumer electronics improvements, and the extensive usage of sensors in cars.
Furthermore, the CHIPS and Science Act, which includes $52 billion in chip manufacturing incentives and research funding, is leaving no stone unturned to help revive U.S. leadership in chip technology and strengthen America’s economy, national security, and supply chains.
The semiconductor market is expected to grow at a CAGR of 6.8% to $171.69 billion over the next five years. Investors’ interest in semiconductor stocks is evident from the SPDR S&P Semiconductor ETF’s (XSD) 8.3% gains over the past six months.
Given the industry’s promising growth prospects, investing in fundamentally strong semiconductor stocks STMicroelectronics N.V. (STM), United Microelectronics Corporation (UMC), Photronics, Inc. (PLAB), and Xperi Inc. (XPER) could be wise before 2023.
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM designs and distributes semiconductor products globally. It operates through three segments, The Automotive and Discrete Group; The Analog, MEMS, and Sensors Group; and The Microcontrollers and Digital ICs Group. It serves the computer and peripherals, automotive, and industrial markets.
On December 7, STM released high-power modules for electric vehicles that boost performance and driving range. STM’s innovative silicon-carbide (SiC) power modules have been chosen for Hyundai Motor Company’s (HYMTF) E-GMP electric-vehicle platform, which the KIA EV6 and numerous other cars share.
Third-generation SiC technology from STM guarantees the highest power density and energy efficiency, leading to improved vehicle performance, range, and charging time. This collaboration has taken a key step toward more sustainable electric vehicles by utilizing STM’s continual technological investment to be the leading semiconductor actor in the electrification revolution.
On December 1, STM and Soitec (Euronext Paris), a pioneer in developing and manufacturing cutting-edge semiconductor materials, announced the next phase of their collaboration on Silicon Carbide (SiC) substrates, with the validation of Soitec’s SiC substrate technology by STM scheduled for the following 18 months.
The shift to 200mm SiC wafers aims to provide significant benefits to STM’s automotive and industrial customers as the business accelerates the electrification of its systems and products.
For the fiscal 2022 third quarter ended October 1, 2022, STM’s net revenues increased 35.2% year-over-year to $4.32 billion, and its gross profit was $2.06 billion, up 54.8% year-over-year. Its operating income rose 110.2% year-over-year to $1.27 billion. Net income came in at $1.10 billion, a 131.3% increase from the year-ago value, while EPS grew 127.5% year-over-year to $1.16.
Analysts expect STM’s revenue for the fiscal year ending December 2022 to increase 25.2% year-over-year to $15.98 billion. The company’s EPS for the current year is expected to increase 84.5% from the prior year to $3.99. STM has surpassed its consensus EPS in each of the four trailing quarters, which is impressive.
The stock has gained 6.3% over the past six months to close the last trading session at $37.38.
STM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Growth, Value, Quality, and Sentiment. Within the Semiconductor & Wireless Chip industry, it is ranked #3 of 93 stocks.
Beyond what we stated above, we also have STM’s ratings for Stability and Momentum. Get all STM ratings here.
United Microelectronics Corporation (UMC)
UMC is a semiconductor wafer foundry with operations in Taiwan, Singapore, China, Hong Kong, Japan, the US, and Europe, among other countries. The business offers circuit design, wafer manufacturing, mask tooling, assembly, and testing services. It assists integrated device producers and fabless design firms. The company is headquartered in Hsinchu City, Taiwan.
On November 30, UMC and Cadence Design Systems, Inc. (CDNS) reported that customers are adopting their certified mmWave reference flow with excellent results. As a proof of point, a low noise amplifier (LNA) IC was successfully taped out on the first pass by Gear Radio Electronics using this technology. With its mmWave platform, UMC intends to benefit from its client achievements.
On September 12, UMC and Avalanche Technology, the market leader in next-generation MRAM technology, announced 22nm production of high-density MRAM-based devices for aerospace applications. Compared to current non-volatile alternatives, this product platform delivers a significant increase in density, endurance, reliability, and power.
This launch will aid UMC in commercializing strong and highly scalable MRAM solutions for the industry. With the help of Avalanche Technology’s potent solutions, UMC is well-positioned to meet the rising need for persistent memory.
For the fiscal 2022 third quarter ended September 30, 2022, UMC’s operating revenues increased 34.9% year-over-year to $2.38 billion, while its gross profit grew 73.6% from the year-ago value to $1.12 billion. Its operating income rose 99.3% year-over-year to $950 million.
In addition, the company’s net income increased 57.6% from the previous year’s quarter to $861 million, while its EPS stood at $0.069, a 53.3% rise from the year-ago value.
The consensus revenue estimate of $9.14 billion for the fiscal year ending December 2022 indicates an 18.8% year-over-year improvement. Likewise, the current year’s consensus EPS estimate of $1.12 billion indicates a rise of 35.6% from the previous year. Moreover, UMC has surpassed the consensus EPS estimates in each of the three trailing quarters.
Shares of UMC have slumped 1.9% over the past five days to close the last trading session at $7.00.
UMC’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and Value. Within the Semiconductor & Wireless Chip industry, it has topped among 93 stocks.
Click here to see additional ratings of UMC for Growth, Stability, Sentiment, and Momentum.
Photronics, Inc. (PLAB)
PLAB manufactures and sells photomask goods and services in the United States, Taiwan, Korea, Europe, China, and globally. The business sells photomasks that produce integrated circuits and flat panel displays (FPDs). It offers its goods to foundries, designers, and producers of semiconductors and FPDs.
For the fiscal 2022 fourth quarter ended October 31, 2022, PLAB’s revenue increased 16% year-over-year to $210.27 million, while its gross profit came in at $80.27 million, a 54.5% increase from the prior year’s quarter. The company’s operating income was $60.54 million, an 80.6% rise from the previous year’s quarter.
Furthermore, PLAB’s net income increased 93% year-over-year to $55.26 million, and its EPS stood at $0.60, an 81.8% rise from the prior year’s quarter.
For the fiscal year ending October 2023, analysts expect PLAB’s revenue to increase 5.7% year-over-year to $871.50 million. The company’s EPS for the current year is expected to increase by 2.3% year-over-year to $1.99.
Moreover, the company’s revenue and EPS for the next fiscal year (ending October 2024) are expected to grow 3.3% and 9.8% year-over-year to $900 million and $2.18, respectively. Shares of PLAB have gained marginally intra-day to close the last trading session at $17.35.
PLAB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Quality. Within the same industry, it has ranked #7 of 93 stocks.
Click here to see additional ratings of PLAB for Growth, Stability, Sentiment, and Momentum.
Xperi Inc. (XPER)
XPER is engaged in offering a suite of software and services. It provides customers with a smooth end-to-end entertainment experience, from selection to consumption. Its segments include Pay TV; Consumer Electronics; Connected Cars; and Media Platform.
On October 12, DTS, a fully owned subsidiary of XPER, IMAX Corporation (IMAX), and Rakuten TV, a subsidiary of Rakuten Group, Inc. (RKUNY), one of the top video-on-demand platforms, announced a substantial expansion of the IMAX Enhanced ecosystem with Rakuten TV’s pledge to carry 100 movies in the IMAX Enhanced format.
Through this partnership, XPER hopes to expand its engagement by enabling new content on its service, showing how it supports outstanding moviegoing experiences for viewers.
On October 3, XPER celebrated its first day of trading as an independent company on the New York Stock Exchange. XPER has amassed a potent portfolio of top-tier entertainment technology companies, which it will use to grow its media platform business by focusing on engagement-based, recurring advertising and data analytics revenue.
For the fiscal 2022 third quarter ended September 30, 2022, XPER’s revenues increased 3.3% year-over-year to $121.64 million. As of September 30, 2022, the company’s cash and cash equivalents stood at $180.12 million, compared to $120.70 million as of December 31, 2021, while total current assets came in at $336.30 million compared to $277.14 million as of December 31, 2021.
The consensus revenue estimate of $535.32 million for the fiscal year ending December 2023 indicates a 7.7% year-over-year improvement. Furthermore, analysts expect the company’s EPS to grow 88% year-over-year during the next year. XPER has plunged 7.6% over the past five days to close the last trading session at $9.11.
XPER’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Sentiment, and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #3 of 92 stocks.
Beyond what we stated above, we also have XPER’s ratings for Momentum, Value, and Stability. Get all XPER ratings here.
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STM shares were trading at $36.88 per share on Friday afternoon, down $0.50 (-1.34%). Year-to-date, STM has declined -24.13%, versus a -18.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...
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