The dream run for the semiconductor industry is continuing well into 2022 as higher demand is bolstering sales, with the supply crisis far from over. Solid demand for 5G devices, automobiles and electronic goods has been pushing demand for semiconductors, making manufacturers struggle to supply microchips.
This saw semiconductor sales jump in the first quarter of 2022, helped by robust sales in each of the three months. Also, predictions are that semiconductor revenues will hit a record high this year. Given this situation, stocks like ON Semiconductor Corporation ON, NeoPhotonics Corporation NPTN, Analog Devices ADI and Semtech Corporation SMTC are expected to benefit in the near term.
Semiconductor Sales Skyrocket
The Semiconductor Industry Association (SIA) said on May 1 that global semiconductor sales rose 23% in the first quarter on a year-over-year basis to $151.7 billion. Although it was 0.5% less than the fourth quarter of 2021, the semiconductor industry is on solid ground, with sales surging every month.
On a month-over-month basis, sales rose 1.1% in March to $50.6 billion. Semiconductor sales have now increased in all the three months of the year. The association also said in its report that sales increased across all major markets in March on a year-over-year basis.
Sales rose 25.7% in Europe, 20.4% in Japan and 17.9% in the Asia Pacific Region. China recorded a 17.3% jump in sales.
Semiconductor Industry on a High
Demand for semiconductors has exploded in recent years. As more people stayed at home to work and learn during the COVID-19 pandemic, demand for electronic goods, networking and communication equipment soared. This gave a boost to semiconductor sales.
Demand for microchips is expected to rise as Internet of Things, artificial intelligence (AI), and virtual reality gain traction. The development of these cutting-edge technologies is dependent on semiconductor technology. As a result, demand for semiconductors is expected to rise in the near future as the need for these services grows.
The increased demand for 5G devices is also benefitting microchip sales, with unit production more than tripling to 555 million in 2021 from 250 million in 2020.
According to a report from Gartner, global semiconductor revenues are projected to hit $676 billion in 2022, jumping 13.6% year over year. Soaring demand for semiconductors will be the main driver of higher revenues.
Of the total growth, semiconductor revenues from smartphones are expected to rise 15.2% in 2022, as 5G smartphone production units are projected to grow 45.3% this year.
While growing demand for semiconductors is helping manufacturers earn more revenues, it has also created a new hurdle for them as they struggle to meet demand. The automobile industry was severely hit in 2021 as a result of this increased demand for semiconductors, which prompted them to curtail production.
As a result, there is a severe supply shortage, forcing many companies to increase production. However, the semiconductor shortage crisis is far from over, and it is expected to last through the rest of the year. This will only benefit the industry because demand is likely to remain strong.
Our Choices
Here we present four chip stocks that investors might gain from in the current scenario.
ON Semiconductor Corporation is a supplier of broadband and power management integrated circuits and standard semiconductors used in numerous advanced devices ranging from high-speed fiber optic networking equipment to the precise power management functions found in portable electronics. ON’s products provide clock management and data flow management for precision computing and communications systems, and power management for distributing and monitoring the supply of power to the different elements within virtually every electronic device.
ON Semiconductor’s expected earnings growth rate for the current year is 60%. The Zacks Consensus Estimate for current-year earnings has improved 18% over the past 60 days. ON holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Analog Devices is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and DSP integrated circuits. ADI’s product line is composed of amplifiers and comparators; analog to digital converters; digital to analog converters; video encoders and decoders; embedded processing products and DSPs; MEMS and temperature sensors; RF/IF components and converters; power and thermal management ICs, audio/video converters, amplifiers, CODECs, filters and processors. Analog Devices has manufacturing facilities in the United States, Ireland and Southeast Asia.
Analog Devices’ expected earnings growth rate for the current year is 30.5%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. ADI carries a Zacks Rank #2.
NeoPhotonics Corporation is engaged in the design and manufacture of photonic integrated circuit, or PIC, based modules and subsystems for bandwidth-intensive, high-speed communications networks. NPTN offers high-speed products that enable data transmission at 10Gbps, 40Gbps and 100Gbps, and agility products such as ROADMs that dynamically allocate bandwidth to adjust for volatile traffic patterns. NeoPhotonics Corporation also makes access products that provide high-bandwidth connections to more devices and people over fixed and wireless networks.
NeoPhotonics Corporation’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 25% over the past 60 days. NPTN sports a Zacks Rank #1.
Semtech Corporation designs, manufactures and markets a wide range of analog and mixed-signal semiconductors for commercial applications. SMTC’s product line comprises Signal Integrity Products, Protection Products, Power and High-Reliability Products, Wireless and Sensing Products, and Systems Innovation Group. Semtech Corporation’sdevices are used in a variety of applications including computer, communications, industrial, military-aerospace and automotive.
Semtech Corporation’s expected earnings growth rate for the current year is 29.5%. The Zacks Consensus Estimate for current-year earnings has improved 8% over the past 60 days. SMTC sports a Zacks Rank #1.
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