The current global semiconductor shortage was in-part created by the accelerated, global, digital transformation and rising household demand for advanced electronic devices. Moreover, the increasing adoption of cloud technologies, 5G solutions, and electric vehicles further contributes to the rising demand for semiconductors.
Since semiconductors form the backbone of emerging technologies, the industry has been enjoying favorable investor sentiment, as evidenced by VanEck Vectors Semiconductor ETF’s (SMH) 61.2% returns over the past year. To meet the growing demand for chips, several semiconductor companies are ramping up their production and manufacturing capabilities significantly. As a result, the semiconductor market is expected to reach $90.8 billion by 2024, growing at a 4% CAGR.
Also, mid-cap stocks have performed well this year, as evident in the iShares Core S&P Mid-Cap ETF (IJH) 16.2% return year-to-date. Given this backdrop, we think it would be wise to bet on fundamentally strong mid-cap semiconductor stocks Rohm Co. Ltd. (ROHCY), Cirrus Logic Inc. (CRUS), MACOM Technology Solutions Holdings Inc. (MTSI), and Semtech Corporation (SMTC) because they are poised to continue moving higher.
Click here to checkout our Semiconductor Industry Report for 2021
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. Its products are used in consumer electronics, PC/communications applications, and automotive industries.
In its fiscal year ended March 31, 2021, ROHCY’s operating profit increased 30.5% year-over-year to ¥38.49 billion ($350 million). Its net profit increased 44.4% from its year-ago value to ¥37 billion ($340 million), while its EPS grew 51.9% from the year-ago value to ¥376.24 ($3.42).
Analysts expect ROHCY’s revenue to rise 33.1% year-over-year to $3.71 billion in its fiscal year 2022.
ROHCY'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 assess stocks by 118 different factors, each with its own weighting.
ROHCY has also rated an A for Growth and Stability, and a B for Value. In addition, , within the B-rated Semiconductor & Wireless Chip industry, it is ranked #17 of 99 stocks. To see more of ROHCY’s component grades, click here.
Cirrus Logic Inc. (CRUS)
CRUS is a fabless semiconductor company based in Austin, Tex., that specializes in audio and voice signal processing integrated circuits (ICs). For a variety of clients, it creates analog and mixed-signal ICs. In addition, it provides digital-to-analog converters, boosted amplifiers, and micro-electromechanical systems microphones, among other products.
This month, CRUS announced that it had agreed to acquire Lion Semiconductor for $335 million in cash. The acquisition will expand the company's high-performance mixed-signal business by providing exclusive intellectual property and solutions for power applications in smartphones, laptops, and other devices.
CRUS’s net sales increased 6.9% year-over-year to $1.37 billion in its fiscal year, ended March 27, 2021. Its operating income grew 36.7% from its year-ago value to $237.180 million. The company's net income increased 36.3% year-over-year to $217.34 million. In addition, its EPS increased 37.1% year-over-year to $3.62 over this period.
The company’s EPS is expected to grow 12.3% year-over-year to $5.19 next year. Moreover, CRUS has an impressive earnings surprise history as it beat the consensus EPS estimates in each of the trailing four quarters. Analysts expect CRUS’s revenue to increase 7.9% year-over-year to $1.48 billion in the current year. The stock has gained 29.8% over the past year and 29.5% over the past nine months.
CRUS’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. CRUS also has a B grade for Value, Quality, and Sentiment. The stock is ranked #24 of 99 stocks in the Semiconductor & Wireless Chip industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the CRUS ratings for Growth, Momentum, and Stability.
MACOM Technology Solutions Holdings Inc. (MTSI)
MTSI is a developer of high-performance analog semiconductor solutions for wireless and wireline applications across the radio frequency (RF), microwave, and photonic spectrum in the United States and internationally. The Lowell, Mass., company markets its products through a direct sales force, applications engineering personnel, independent sales representatives, resellers, and distributors.
Last month, MTSI and MaxLinear announced a collaboration to ensure the compatibility of MaxLinear's PAM4 DSPs with MACOM's 100G/lane trans-impedance amplifiers (TIAs) for 100G/lambda application. This will enable customers to choose a proven design solution with a very low bit error rate for their optical module designs.
During the second quarter, ended April 2, 2021, MTSI’s revenue increased 19.2% year-over-year to $150.58 million. The company reported $18.97 million in operating income, compared to a $5.27 million operating loss in the prior-year quarter. Its net income came in at $14.81 million for this period, compared to a $10.23 million net loss in the first quarter of 2020. The company’s EPS totaled $0.21, versus a $0.13 loss per share in the prior year period.
The company's EPS is expected to grow 109.2% year-over-year to $2.05 in the current year. Analysts expect MTSI's revenue to increase 14.4% from its year-ago value to $606.22 million in its fiscal year 2021. MTSI's stock has gained 63.5% over the past year. Also, the stock has surged 71.8% over the past nine months.
MTSI's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. MTSI is also rated a B grade for Growth and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #40 of 99 stocks.
Click here to see additional POWR Ratings for Stability, Value, Momentum, and Sentiment for MTSI.
Semtech Corporation (SMTC)
SMTC provides analog and mixed-signal semiconductor products. The Camarillo, Calif., company creates, develops, and sells products for commercial applications sold into the enterprise computing, communications, consumer, and industrial end markets. In addition, it offers power products consisting of switching voltage regulators, wireless and sensing products, and specialized sensing products used in industrial and consumer applications.
This month, SMTC announced a partnership with Swiss Post that resulted in the successful deployment of Swiss Post "Order Pens" that use Semtech's LoRa devices and the LoRaWAN standard to provide universal postal service to Swiss citizens and businesses. The Swiss Post improved its postal service ordering process across the country by incorporating LoRa.
Also, this month, SMTC announced a collaboration with WyreStorm on the new 18Gbps 4K HDR for a variety of Pro AV market uses, including residential applications. The collaboration aims to provide a robust experience that can support various high-quality audio and video needs.
During the first quarter, ended May 2, 2021, SMTC’s net sales increased 28.4% year-over-year to $170.37 million. Its operating income increased 77.4% year-over-year to $27.97 million, while its net income surged 143.9% from the prior-year quarter to $23.50 million. Its EPS grew 140% from the prior-year quarter to $0.36.
The company's EPS is expected to grow 38.9% year-over-year to $2.43 in the current year. In addition, analysts expect SMTC's revenue to increase 21.9% year-over-year to $725.41 million in its fiscal year 2022. SMTC's stock has gained 17.9% over the past year and 9% over the past nine months.
It is no surprise that SMTC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B grade for Growth, Sentiment, and Quality. In the Semiconductor & Wireless Chip industry, it is ranked #8 of 99 stocks.
In addition to the POWR Ratings grades I have just highlighted, one can see the SMTC rating for Stability, Value, and Momentum here.
Click here to checkout our Semiconductor Industry Report for 2021
ROHCY shares were trading at $44.76 per share on Tuesday morning, down $0.93 (-2.03%). Year-to-date, ROHCY has declined -9.67%, versus a 18.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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