Despite experiencing a slowdown during the second half of 2022, the semiconductor industry achieved its highest-ever annual sales, with a 3.3% year-over-year increase. Despite the near-term challenges of high inflation and declining consumer demand, industry experts hold an optimistic long-term outlook for the semiconductor sector due to its growing applications across various fields.
In this piece, I have discussed the reasons why I think Cohu, Inc. (COHU), ROHM Co., Ltd. (ROHCY), and ChipMOS TECHNOLOGIES INC. (IMOS) are performing better than Intel Corporation (INTC) and could be wise investments now.
According to Gartner, global semiconductor revenues will decline 11.2% in 2023. Although the long-term growth prospects of the semiconductor industry look bright, the current macroeconomic headwinds will continue to put pressure on the chip industry in the short term.
Gartner’s Practice VP Richard Gordon said, “As economic headwinds persist, weak end-market electronics demand is spreading from consumers to businesses, creating an uncertain investment environment.” The sector is poised for long term growth, due to the increasing interest in generative AI, which is expected to elevate the demand for advanced semiconductor chips.
INTC reported better-than-expected earnings and revenue in the second quarter. The company returned to profitability after two consecutive quarters of losses. For the third quarter, it guided for EPS of 20 cents per share and revenue of $13.40 billion at the midpoint. INTC’s third-quarter earnings and revenue forecast were higher than the Street estimates of 16 cents per share and $13.23 billion, respectively.
INTC CEO Pat Gelsinger said that the company continues to witness “persistent weakness” in all segments of its business through year-end, and its server chip sales will not recover until the fourth quarter. He also highlighted that cloud companies were securing graphic processing units (GPUs) for artificial intelligence (AI) instead of its central processors.
Due to demand softness in the consumer electronics market, demand for chips will remain subdued, putting pressure on INTC this year. Although the company has also been a slow-mover in the AI chip segment, but its Gaudi2 GPU is taking rapid strides in the lucrative AI processing market.
INTC is trading at an expensive valuation. INTC’s forward non-GAAP P/E of 55.65x is 148.5% higher than the industry average of 22.39x. Its forward EV/EBIT of 70.57x is 292.8% higher than the industry average of 17.97x. Additionally, its 13.42x forward non-GAAP PEG is 658.8% higher than the 1.77x industry average.
For the third quarter, INTC expects a non-GAAP gross margin of 43%. INTC’s stock has declined 3.6% in price over the past three months but gained 31.3% year-to-date to close its last trading session at $34.69.
Considering INTC’s uncertain near-term outlook, COHU, ROHCY, and IMOS could be better buys. Now let’s examine the fundamentals of the three Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Cohu, Inc. (COHU)
COHU provides semiconductor test equipment and services in China, the United States, Taiwan, Malaysia, the Philippines, and internationally. The company supplies semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors, thermal sub-systems, and semiconductor automated test equipment for semiconductor manufacturers and test subcontractors.
On January 30, 2023, COHU announced its acquisition of MCT Worldwide, LLC (MCT), a prominent provider of semiconductor test handler automation equipment. This addition enhances COHU’s product offerings, including strip, film-frame, and laser marking technologies, and is expected to boost its presence in the advanced package test market, with anticipated accretive effects starting in 2024.
Luis Müller, President and CEO at COHU said, “I am happy to welcome MCT and its employees to the Cohu family. This acquisition provides an opportunity to expand our addressable market with film-frame test and laser marking equipment.”
In terms of forward non-GAAP P/E, COHU’s 19.85x is 11.4% lower than the 22.39x industry average. Its 10.25x forward EV/EBITDA is 27.6% lower than the 14.15x industry average. Likewise, its 12.66x forward EV/EBIT is 29.6% lower than the 17.97x industry average.
In terms of the trailing-12-month EBIT margin, COHU’s 13.10% is 190.3% higher than the 4.51% industry average. Its 9.75% trailing-12-month net income margin is 379.6% higher than the 2.03% industry average. Likewise, its 7.88% trailing-12-month Return on Common Equity is 676.2% higher than the industry average of 1.01%.
COHU’s net sales for the second quarter ended July 1, 2023, came in at $168.92 million. Its non-GAAP income from operations came in at $29.91 million. The company’s non-GAAP net income came in at $22.84 million. In addition, its non-GAAP net income per share came in at $0.48.
Analysts expect COHU’s EPS and revenue for the fiscal 2024, to increase 42.3% and 12.5% year-over-year to $2.47 and $736.69 million, respectively. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 25.3% to close the last trading session at $34.41.
COHU’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #19 out of 92 stocks in the Semiconductor & Wireless Chip industry. It has an A grade for Momentum and a B for Value and Sentiment. Click here to see the additional ratings of COHU for Growth, Stability, and Quality.
Stock #2: ROHM Co., Ltd. (ROHCY)
ROHCY, headquartered in Kyoto, Japan, is a global electronic components manufacturer. The company operates in three segments: LSI; Semiconductor Devices; and Modules. Its product portfolio comprises ICs, discrete semiconductor products like MOSFETs, bipolar transistors and diodes, power devices such as power transistors and diodes, and modules.
On June 19, 2023, ROHCY announced a long-term supply partnership with Vitesco Technologies worth over one billion US dollars until 2030, enabling Vitesco Technologies to secure strategically important capacities in energy-efficient silicon carbide power semiconductors. Vitesco Technologies will integrate these SiC chips into their advanced inverters for electric vehicle powertrains.
Dr. Kazuhide Ino, Member of the Board, Managing Executive Officer and CFO of at ROHCY said, "In the high-growth automotive market, SiC is a pathfinder for higher efficiency. With an expected higher market share of more than 30 percent, we are strongly positioned here and have gained a strategic partner in Vitesco Technologies for further market penetration."
On July 12, 2023, ROHCY announced it is set to acquire the assets of Solar Frontier's former Kunitomi Plant in Japan in October 2023, enhancing its semiconductor production capabilities. This expansion meets the rising demand in sectors like automotive and industrial equipment, aligning with electrification and sustainability trends. The Kunitomi Plant will become a key production site for the ROHM Group.
In terms of forward EV/Sales, ROHCY’s 1.66x is 37.8% lower than the 2.67x industry average. Its 5.70x forward EV/EBITDA is 59.7% lower than the 14.15x industry average. Likewise, its 11.33x forward EV/EBIT is 37% lower than the 17.97x industry average.
In terms of the trailing-12-month EBITDA margin, ROHCY’s 29.26% is 219.7% higher than the 9.15% industry average. Likewise, its 8.11% trailing-12-month Return on Common Equity is 699.5% higher than the 1.01% industry average. Additionally, its 21.77% trailing-12-month Capex/Sales is 799.6% higher than the 2.42% industry average.
For the first quarter ended June 30, 2023, ROHCY’s net sales came in at ¥120.16 billion ($812.28 million). Its operating profit came in at ¥17.69 billion ($119.58 million). The company’s profit attributable to owners of parent came in at ¥20.13 billion ($136.08 million). Also, its net income per share for the period came in at ¥205.12.
Street expects ROHCY’s revenue for the quarter ending March 31, 2024, to increase 9.6% year-over-year to $954.10 million. The stock has gained 9.7% year-to-date to close the last trading session at $39.22.
ROHCY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Stability and a B for Value and Momentum. It is ranked #9 in the same industry. To see ROHCY’s Growth, Sentiment, and Quality ratings, click here.
Stock #1: ChipMOS TECHNOLOGIES INC. (IMOS)
Headquartered in Hsinchu, Taiwan, IMOS develops, manufactures, and sells high-integration and high-precision ICs and related assembly and testing services internationally. The company operates through Testing; Assembly; Testing and Assembly for LCD, OLED, and Other Display Panel Driver Semiconductors; Bumping; and other segments.
In terms of forward EV/Sales, IMOS’s 1.47x is 44.9% lower than the 2.67x industry average. Its 4.69x forward EV/EBITDA is 66.8% lower than the 14.15x industry average. Likewise, its 1.31x forward Price/Sales is 50% lower than the 2.62x industry average.
In terms of the trailing-12-month net income margin, IMOS’s 8.63% is 324.4% higher than the 2.03% industry average. Likewise, its 6.73% trailing-12-month EBIT margin is 49.1% higher than the 4.51% industry average. Additionally, its 7.25% trailing-12-month Return on Common Equity is 614.2% higher than the 1.01% industry average.
IMOS’ revenue for the second quarter ended June 30, 2023, came in at NT$5.45 billion ($170.16 million). Its net non-operating income came in at NT$222.40 million ($6.88 million). The company’s net profit attributable to equity holders of the company came in at NT$628.50 million ($19.62 million). Also, its EPS came in at NT$0.86.
For the quarter ending September 30, 2023, IMOS’ revenue is expected to increase 6.9% year-over-year to $176.86 million. Over the past year, the stock has gained 17.5% to close the last trading session at $24.19.
It’s no surprise that IMOS has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value and Sentiment. Within the Semiconductor & Wireless Chip industry, it is ranked #6. In total, we rate IMOS on eight different levels. Beyond what we stated above, we also have given IMOS grades for Growth, Stability, and Quality. Get all the IMOS ratings here.
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ROHCY shares were trading at $38.29 per share on Thursday afternoon, down $0.93 (-2.37%). Year-to-date, ROHCY has gained 7.13%, versus a 14.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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