Updated: May 25
In light of AMD posting blowout quarterly earnings last week (highlighted by higher Radeon and Ryzen volume along with higher CPU ASPs), management reiterated extremely bullish guidance with Q1/2022 and FY/2022 outlook blowing past the already pretty aggressive consensus street estimates. Server momentum continues and note that the Xilinx acquisition will be included as of this quarter (AMD will finally be producing the wafers Xilinx desperately needs). In light of the on-going chip shortage driven by reduced supply chains and increased demand from newer entrants such as the automotive sector, 5G chips, leading edge computing and graphics processors, over $50B thus far has been pledged (most notably by the likes of Intel) to build domestic fabs to regain control of both manufacturing/supply and to insulate from the geo-political overhanging given Taiwan and South Korea’s dominance of the chip manufacturing industry. What better time to take a look at the domestic semiconductor landscape and see if any attractive opportunities remain.
With the SMH Semiconductor ETF increasing nearly 200% since the beginning of 2019 (and nearly 150% from the pandemic lows), despite the YTD tech pullback, valuations remain stretched as can be seen above with the dominant players (AMD, Marvell Technologies and Nvidia) ranking in the top right quadrant among domestic semiconductor peers (on both Forward P/E and EV/EBITDA metrics). That said, most noticeable is that Intel and Qorvo rank far in the bottom left quadrant. Though Intel has had its share of problems of the past few quarters, the once dominant company is very much in transition now under the guidance of CEO Pat Gelsinger. At present, we see the risk/reward opportunity most attractive with Qorvo.
Though more in the business of design and manufacturing of semiconductors for radio-frequency systems (wireless and broadband communications, along with foundry services), Qorvo has lagged over the last two quarters largely due to disappointing guidance and in-line earnings in an environment where many other peers were hitting absolute home runs. Quarterly results as announced last week were pretty much in line (Revenues $1.11B, EPS $2.98), however management stated that growth in China has reset lower (somewhat offset however by higher rest-of-world demand). Notable wins during the quarter include a product offering to Samsung and the delivery of a complete ultrawide-band solution for Android smartphones. With Qualcomm’s exit from next year’s iPhone and particularly as 5G continues to roll out, opportunity abounds for the company to move in and sign meaningful contracts in the quarters ahead.