Semiconductors have a wide range of applications, from vehicles to appliances to smartphones. With an increasing demand for tech-oriented products and the rising popularity of electric vehicles (EVs), semiconductors witnessed unprecedented demand over the past year, triggering a supply shortage as production facilities remained closed for a significant period during the initial months of the COVID-19 pandemic.
The U.S. Senate passed a bipartisan tech and manufacturing bill in June to address the production bottlenecks and boost domestic manufacturing capacity. The bill allocates $52 billion toward semiconductor production, helping the industry to strengthen its supply chain. In addition, governments of many other countries are similarly investing in the industry to address the shortage. Due to its wide-ranging applications and favorable government policies, global semiconductor sales are expected to increase 19.7% in 2021 and 8.8% in 2022.
Given this backdrop, we expect popular semiconductor companies Texas Instruments Incorporated (TXN), Micron Technology, Inc. (MU), and KLA Corporation (KLAC) to rally in price substantially in the coming months.
Texas Instruments Incorporated (TXN)
TXN, in Dallas, Tex., designs and manufactures analog and embedded semiconductor chips. The analog segment produces power solutions such as switches and regulators to be used in industries. The embedded processing segment caters to the processing needs of products such as microcontrollers and wireless connectivity equipment.
On July 27, TXN revealed its next-generation Python graphing calculator, introducing the popular programming language Python to its young users absent the necessity of using Wi-Fi or Bluetooth connectivity. The device’s introduction before the school year opens in the fall is likely to expand the company’s customer base.
On June 30, TXN signed an agreement with MU to acquire the latter’s 300mm semiconductor factory in Lehi, Utah, for $900 million, by the end of 2021. The acquisition is expected to bring advanced technical skills to the manufacture of semiconductors and accelerate TXN’s production.
In its second fiscal quarter, ended June 30, TXN’s revenue increased 41.4% year-over-year to $4.58 billion. Its operating profit rose to $2.21 billion, indicating an 80.2% year-over-year increase. The company’s net income increased 39.9% from the prior-year quarter to $1.93 billion, while EPS came in at $2.05, indicating a 38.5% increase from the same period last year.
Analysts expect EPS to increase 40.7% year-over-year to $2.04 in the current quarter (ending September 2021). Likewise, the Street’s $4.64 billion revenue estimate for the current quarter indicates a 35% increase from the prior-year quarter. Moreover, TXN has an impressive surprise earnings history; it topped the consensus EPS estimates in each of the four trailing quarters. The stock has gained 34.9% in price in the past year to close yesterday’s trading session at $189.46.
TXN’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.
TXN has a Quality grade of A, and a Momentum and Sentiment grade of B. In the 99-stock Semiconductor & Wireless Chip industry, it is ranked #29. And this industry is rated B.
Click here to see the additional POWR Ratings for TXN (Growth, Value, and Stability).
Micron Technology, Inc. (MU)
MU operates as a seller of memory and storage products through its global brands Micron and Crucial. The company functions in four units: Compute and Networking Business; Mobile Business; Storage Business; and Embedded Business. MU is based in Boise, Idaho.
August 3, MU made its Gen4 Solid State Drives (SSDs) available to customers to generate 66% faster sequential write speed than its previous SSDs. The product is expected to make gaming, content creation, and video solutions easier and faster to attain. Amid the growing need for rapid storage solutions, these new drives should garner good returns for the company.
On July 26, MU began shipping its new Universal Flash Storage (UFS) for high-end mobile phones. The new technology will enable users to download a high-definition movie within seconds. Regarding the UFS, Raj Talluri, Senior Vice President and General Manager of MU’s Mobile Business Unit, said, “Our breakthrough 176-layer NAND supercharges smartphones with unparalleled performance, delivering rich multimedia content to consumers’ fingertips in a flash.”
MU’s revenue increased 36.5% year-over-year to $7.42 billion in its fiscal third quarter, ended June 3. The company’s non-GAAP operating income rose 141% from the prior-year quarter to $2.36 billion. Its Non-GAAP net income attributable to MU rose 130.9% year-over-year to $2.17 billion. And its non-GAAP EPS came in at $1.88, indicating a 129.3% year-over-year increase.
A $2.32 consensus EPS estimate for the current quarter (ending August 2021) reflects a 114.8% year-over-year increase. Likewise, the $8.21 billion consensus revenue estimate for the current quarter indicates a 35.6% increase from the prior-year quarter. In addition, MU has an impressive earnings history; it beat consensus EPS estimates in all four trailing quarters. MU’s shares have gained 58.4% in price over the past year to close yesterday’s trading session at $73.64.
It’s no surprise that MU has an overall rating of B, which translates to a Buy in our POWR Ratings system. In addition, MU has a Value and Momentum grade of B. It is ranked #27 of 99 in the Semiconductor & Wireless Chip industry.
To see additional POWR Ratings for Growth, Stability, Sentiment, and Quality for MU, click here.
KLA Corporation (KLAC)
KLAC designs and sells solutions for yield management for semiconductors and related nanoelectronics solutions. In addition, the Milpitas, Calif.-based company offers products and services that include chip and wafer manufacturing, reticle manufacturing, IC component inspection, and more.
On July 21, KLAC’s wholly owned subsidiary, Orbotech, announced that it had sold its eco-friendly solder mask solution to printed circuit board (PCB) manufacturer TTM Technologies, Inc. (TTMI). The technology essentially generates less chemical wastage, which allows PCB manufacturers to manufacture their products sustainably. This move demonstrates KLAC’s capability in today’s fast-moving electronics industry.
On June 22, KLAC launched four new automotive chip manufacturing products. With the increasing demand for semiconductor chips and solutions, these additions to the company’s product portfolio are likely to increase KLAC’s revenue soon.
KLAC’s total revenue increased 31.8% year-over-year to $1.93 billion in its fiscal fourth quarter, ended June 30. Its non-GAAP net income came in at $684 million, indicating a 60.6% increase from the prior-year quarter. Its non-GAAP EPS increased 62.3% from the same period last year to $4.43.
The Street’s $4.52 EPS estimate for the current quarter (ending September 30, 2021) indicates a 49.2% year-over-year increase. Likewise, the Street’s $2.04 billion revenue estimate for the current quarter reflects a 37.5% increase from the prior-year quarter. Furthermore, KLAC has topped consensus EPS estimates in each of the four trailing quarters. The stock has gained 76.8% in price over the past year and 32% year-to-date.
KLAC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, , which equates to Buy in the POWR Rating system.
KLAC has a Quality grade of A, and a Momentum and Sentiment grade of B. It is ranked #19 of 99 in the Semiconductor & Wireless Chip industry.
In addition to the POWR Rating grades we’ve stated above, one can see KLAC ratings for Growth, Value, and Stability here.
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TXN shares were trading at $188.18 per share on Wednesday morning, down $1.28 (-0.68%). Year-to-date, TXN has gained 16.63%, versus a 21.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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