The semiconductor industry is expected to continue seeing rising demand this year and beyond with the increasing adoption of cloud technologies, 5G solutions, and rising demand from the booming electric vehicles (EV) industry. While the global chip shortage is expected to persist for some time due to lean inventory levels resulting from plant shutdowns and slowdowns amid the COVID-19 pandemic, and recent production delays caused by a fire at Japan’s Renesas Electronics plant, government initiatives worldwide to create a more secure supply chain bodes well for the industry going forward. In fact, the global semiconductor manufacturing market is expected to reach $95.9 billion by 2025, representing a 9% CAGR over this period.
With chip manufacturers intensifying investments and aggressively adding capacity to meet the growing demand from electronics, automotive, and other sectors, the industry is expected to witness significant growth in the coming months. Consequently, the industry has been enjoying favorable investor sentiment, as evidenced by the VanEck Vectors Semiconductor ETF’s (SMH) 68% returns over the past year compared to SPDR S&P 500 ETF Trust’s 34.4% gains over this period.
Given the rising demand for semiconductors from various industries, chip stocks such as NXP Semiconductors N.V. (NXPI), Rohm Co Ltd (ROHCY), Kulicke and Soffa Industries, Inc. (KLIC), and Himax Technologies Inc. ADR (HIMX) are expected to generate substantial growth in their earnings and revenues in the coming months. So, we think it could prove fruitful to bet on these stocks now.
Click here to checkout our Semiconductor Industry Report for 2021
NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, Netherlands, NXPI is a semiconductor product manufacturer. The company’s product range includes microcontrollers, application processors, communication processors, and wireless connectivity solutions. It sells its products to various industries, including the automotive, industrial, and Internet of Things, as well as mobile and communication infrastructure.
This month, NXPI announced the availability of beta Ultra-Wideband (UWB) development tools with the U1 chip for iPhone and Apple Watch. This development should enable the company to meet the needs of a wide range of customers and differentiate itself in the market.
Also this month, the company released S32G2 vehicle network processors and its S32R294 radar processor on TSMC’s advanced 16 nanometer FinFET process technology to allow automakers to deliver a fully connected and configurable vehicle. This advancement should enable NXPI to diversify its portfolio and offer enhanced connectivity solutions to its customers.
NXPI’s revenue increased 27% year-over-year to $2.6 billion in the first quarter, ended April 4, 2021. Its operating income grew 623.5% from its year-ago value to $492 million, while its net income came in at $364 million for this period, compared to a $13 million net loss in the first quarter of 2020. The company’s EPS was $1.25, compared to a $0.08 loss per share in the prior-year period.
A $10.63 consensus EPS estimate for its fiscal year 2022 represents a 10.1% improvement year-over-year. Also, NXPI has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters. The $11.21 billion consensus revenue estimate for the next year represents a 6.2% increase from the same period last year. The stock has gained 64.8% over the past year and 21.4% year-to-date.
NXPI’s POWR Ratings reflect this promising outlook. The company 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.
NXPI is also rated an A for Growth and B for Sentiment. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #20 of 98 stocks.
To see additional POWR Ratings for Value, Stability, Momentum, and Quality for NXPI, Click here.
Rohm Co Ltd (ROHCY)
Based in Kyoto, Japan, ROHCY is a leading manufacturer and seller of electronic components internationally. The company’s product portfolio consists of ICs, power management, clock and timers, sensors and MEMS, data converters, display drivers, LED displays and other electronic components.
In its fiscal year ended March 31, 2021, ROHCY’s operating profit increased 30.5% year-over-year to ¥38.49 billion ($0.35 billion). Its net profit increased 44.4% from its year-ago value to ¥37 billion ($0.34 billion), while its EPS grew 51.9% from its year-ago value to ¥376.24 ($3.42).
Analysts expect ROHCY’s revenue to rise 32.4% year-over-year to $3.69 billion in the fiscal period ending March 2022. Also, its revenue is expected to increase 5.6% in the fiscal period ending March 2023.
It is no surprise that ROHCY has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Growth, and B for Value and Stability. In the Semiconductor & Wireless Chip industry, it is ranked #11 of 98 stocks.
In total, we rate ROHCY on eight different levels. Beyond what we’ve stated above, we have also given ROHCY grades for Momentum, Quality, and Sentiment. Get all the ROHCY ratings here.
Kulicke and Soffa Industries, Inc. (KLIC)
Headquartered in Singapore, KLIC designs , manufactures and sells capital equipment required for assembling semiconductor devices. It functions across two major segments: capital equipment and aftermarket product and services (APS). KLIC offers its products to outsourced semiconductor assembly and test providers, semiconductor device manufacturers and other industrial manufacturers. The company supplies its products to primarily the U.S. and Asia-Pacific region.
In April, KLIC received the Texas Instruments (TI) 2020 Supplier Excellence Award, reflecting its commitment to technology, assurance of supply and quality to its customers, as well as environmental and social responsibility. The recognition should establish the company as an industry leader in the global semiconductor market.
During its second fiscal quarter, ended April 3, 2021, KLIC’s revenue increased 125.7% year-over-year to $340.2 million. Its non-GAAP operating income rose 441% from its year-ago value to $89.8 million. The company’s non-GAAP net income increased 367.1% year-over-year to $79.4 million, while its EPS grew 384.6% from the prior-year quarter to $1.26.
KLIC is expected to generate 101.6% revenue growth for the next quarter, ending September 2021, and 119.2% growth for its fiscal year 2021. Its EPS is estimated to increase 547.6% year-over-year to $1.36 in the quarter ending June 2021. Over the past year, KLIC’s stock has gained 134%. And it has gained 69.7% so far this year.
KLIC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. KLIC has an A grade for Growth, and a B grade for Value, Momentum, and Quality. Among the 98 stocks in the Semiconductor & Wireless Chip industry, it is ranked #9.
Click here to see the additional POWR Ratings for KLIC (Sentiment and Stability).
Note that KLIC is one of the few handpicked stocks currently in the Reitmeister Total Return portfolio. Learn more here.
Himax Technologies Inc. ADR (HIMX)
Founded in 2001, and headquartered in Tainan City, Taiwan, HIMX is a fabless semiconductor company that operates through driver IC and non-driver products segments. It is also a global market leader in TFT-LCD display driver and timing controller ICs used in televisions, laptops, monitors, mobile phones, tablets, automotive, and other electronic devices.
Last month, HIMX introduced the latest liquid crystal on silicon (LCoS) technology, phase modulation LCoS, for AR Head-Up Display (AR HUD) application platforms and Wavelength Selective Switch (WSS) for communications networks. These new key features should allow the company to capitalize on the increasing proliferation of 5G technology.
HIMX’s revenue increased 67.4% year-over-year to $309 million in the first quarter ended March 31, 2021. The company’s net income increased significantly from its year-ago value to $67.1 million over this period. HIMX’s gross profit rose 196.4% from the prior year quarter to $124.28 million, attributable primarily to increased sales due to leadership in various segments in the industry.
The company’s EPS is expected to grow 420% for 2021 and 3.8% next year. The Street expects HIMX’s revenue to increase 46.2% in 2021 and 9.3% in 2022. HIMX’s stock has gained 310.6% over the past year. Also, over the past six months, the stock has surged 109%.
HIMX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. HMIX also has an A grade for Growth and Value. The stock is ranked #28 of 98 stocks in the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings grades I have just highlighted, you can see the HIMX ratings for Quality, Momentum, Sentiment, and Stability.
Click here to checkout our Semiconductor Industry Report for 2021
NXPI shares were trading at $197.79 per share on Monday afternoon, up $4.69 (+2.43%). Year-to-date, NXPI has gained 25.11%, versus a 12.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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