Semiconductor Sales Soar in Q3 on Increased Demand: 5 Winners

The dream run for the semiconductor industry continued in the third quarter and the uptrend is expected to last for several months given the global shortage. According to the Semiconductor Industry Association (“SIA”), global microchip sales rose both in the third quarter as well as month over month in September.

While microchip shortage has crippled the automobile, PC and electronic goods industries, semiconductor manufacturers are making the most of the situation.

Semiconductor Sales Continue to Soar

The SIA announced on Nov 1 that worldwide sales of semiconductors totaled $144.8 billion in the third quarter of 2021, marking a jump of 27.6% year over year and 7.4% from the second quarter. Last quarter, the microchip industry also achieved a milestone of shipping the highest number of semiconductor units in the market’s history.

Moreover, microchip sales totaled $48.3 billion in September, growing 27.6% year over year and 2.2% month over month. Chip shipments have been growing over the past several months and hit record highs as the industry continued to ramp up production on growing demand across major industries, including auto, computers and electronic goods.

Sales grew across all regions on a year-over-year basis in September. Semiconductor sales grew 32.3% in Europe, 33.5% in the Americas and 27.2% in Asia Pacific. In Japan, sales jumped 24.5%, while in China it grew 24%. Month over month, sales increased 3.9% in the Americas, 2% each in Europe and Japan, 1.5% in China, 1.9% in the Asia Pacific/All Other.

Semiconductor Industry to Grow Further

The semiconductor industry had somewhat slowed down but the pandemic worked miracles. As more people worked and learned from home, they invested in electronic items, computers and accessories. This shot up the demand for semiconductors, thus helping drive sales.

The trend has continued and sales got a further thrust after the automobile industry started placing more orders on higher demand for vehicles. However, the automobile industry has now become a major casualty of the situation.

As the economy reopened and automobile plants started getting back to the optimum production level, the microchip shortage posed a new roadblock. This has seen automakers cutting down production, which is impacting sales.

According to an IHS Markit report, the global chip shortage could result in a vehicle production cut by 700,000 in the third quarter, as automakers continue to temporarily halt production. According to Bloomberg, this could result in a loss of $61 billion in revenues by the end of this year.

However, this has been benefiting the semiconductor industry as sales continue to soar on higher demand. According to experts, the shortage can now continue into 2022 and even 2023.

Our Choices

Given the rising demand for semiconductors and continuing supply crunch, the semiconductor industry is only likely to benefit in the near term. Below are five chip stocks that investors can gain from in the current scenario.

Silicon Laboratories, Inc. SLAB is a leading provider of silicon, software and solutions for the Internet of Things, Internet infrastructure, industrial automation, consumer and automotive markets. They solve the electronics industry's toughest problems, providing customers with significant advantages in performance, energy savings, connectivity and design simplicity.

The company’s expected earnings growth rate for next year is 11.6%. The Zacks Consensus Estimate for current-year earnings has improved 39.4% over the past 60 days. Silicon Laboratories holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NXP Semiconductors N.V. NXPI provides high-performance, mixed-signal and standard product solutions that leverage its RF, analog, power management, interface, security, as well as digital processing expertise.

The company’s expected earnings growth rate for next year is 34.5%. The Zacks Consensus Estimate for current-year earnings improved 2.4% over the past 60 days. NXP Semiconductors carries a Zacks Rank #2.

ON Semiconductor Corporation ON is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 12.4% over the past 60 days. ON Semiconductors holds a Zacks Rank #2.

STMicroelectronics N.V. STM designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices. These are used in various microelectronic applications, including telecommunications systems, computer systems, and consumer electronics products, automotive products and industrial automation and control systems.

The company’s expected earnings growth rate for the current year is 65.3%. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 60 days.STMicroelectronicshas a Zacks Rank #2.

NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and inventor of the graphic processing unit, GPU. Over the years, the company’s focus has evolved from PC graphics to AI-based solutions that now support high-performance computing, gaming and virtual reality platforms.

The company’s expected earnings growth rate for the current year is 65.6%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. Nvidia has a Zacks Rank #2.

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