Smartphone Sales, 5G to Aid Semiconductor Market: 4 Winners

The Semiconductor Industry Association (SIA) on May 4 said that the global component market grew 6.9% year over year in the first quarter. However, global semiconductor sales declined 3.6% from the previous quarter but increased 0.9% month over month in March.

The global semiconductor industry, which plays a key role in the high-growth technology space, has relatively been less battered by the coronavirus pandemic. Although the industry has shown steady growth, it has fallen short of other technology counterparts like Internet and cloud computing.

Per the IDC Semiconductor Applications Forecaster (SAF), the coronavirus outbreak is going to impact the semiconductor industry. However, with the economy reopening, sales of smartphone rebounding in markets like China and more people spending time on their mobile phones, the semiconductor industry might stand to benefit in the near term.

Global Semiconductor Sales Jump in March

Global sales for the month of March 2020 were $34.9 billion, up 0.9% from the previous month’s total and 6.9% higher than March 2019. According to SIA, worldwide sales of semiconductors totaled $104.6 billion during the first quarter of 2020, marking a 3.6% decline from the prior quarter.

Although the COVID-19 outbreak hasn’t so far impacted the semiconductor industry much, the latest report by IDC SAF projects another 4.2% decline in semiconductor revenues in 2020 from $418 billion in 2019.

Excluding the DRAM and flash markets, semiconductors are expected to decline 7.2% in 2020. Per the IDC report, the impact of COVID-19 and the subsequent shelter-in-place orders and shutdowns have had an uneven impact on the semiconductor market. However, with countries now lifting lockdowns, things might change for the better given the growing sales of smartphones and 5G boom that is likely to boost demand for DRAM and NAND flash memory chipsand microchips.

Chipmakers Likely to Gain Post COVID-19 Lockdown

Slowing smartphone sales during the coronavirus pandemic was a cause of concern for not only mobile manufacturers but also chipmakers. However, this may change now with economies finally opening up.

Apple, Inc.’s AAPL iPhone sales in China rebounded from February lows. According to figures released by Chinese authorities, Apple sold around 2.5 million iPhones in greater China during March, marking a considerable uptick from coronavirus-induced lows the month before.   

Also, Micron Technology MU recently said that smartphone demand in China has finally started to rebound. This is likely to help Micron, one of the market leaders in DRAM and NAND flash memory chips, and even its rivals in the near term.

Microchip demand is also likely to get a boost with the 5G boom in Europe and parts of Asia including China. IDC expects 5G volumes to grow this year despite the demand uncertainty, driving strong semiconductor content as OEMs position 5G in lower tiers to broaden the reach. There are 5G phones that have started selling for under $300 in China.

Our Choices

The IDC has warned that semiconductor revenues might somewhat decline in 2020. However, rebounding smartphone sales and 5G boom are likely to act as tailwind to the space. Below are four chip stocks investors can gain from in this scenario.

NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or 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 27.7%. Its shares have gained 20.4% in the past 30 days. The Zacks Consensus Estimate for current-year earnings has improved 14.3% over the past 60 days. Nvidia carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NeoPhotonics Corporation NPTN is engaged in the design and manufacture of photonic integrated circuit, or PIC-based modules and subsystems for bandwidth-intensive, high-speed communications networks.

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 11.6% over the past 60 days. NeoPhotonics sports a Zacks Rank #1.

MagnaChip Semiconductor Corporation MX operates as a designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer applications.

The company’s expected earnings growth rate for the current year is more than 85.4%. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 60 days. MagnaChip carries a Zacks Rank #1.

Inphi Corporation IPHI operates as a provider of fabless high-speed analog semiconductor solutions for the communications and computing markets. Its solutions provide interface between analog signals and digital information in high-performance systems.

The company’s expected earnings growth rate for the current year is more than 39.8%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. Inphi has a Zacks Rank #2.

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