Despite supply chain challenges, an analyst at KeyBanc Capital Markets said he is constructive on the semiconductor cycle. Here’s why.
Strong Demand Persists
Fourth-quarter IC unit shipments increased 15 percent year-over-year, slower than the third quarter’s 15 percent growth but much faster than the five-year, fourth-quarter average of 9 percent, analyst John Vinh said in a note.
The analyst highlighted auto, industrials and cloud data center as subsectors seeing strong growth. Enterprise and 5G deployments excluding China are picking up, he added.
“With broad-based demand remaining healthy and modest improvements in incremental capacity, we expect better-than-seasonal modest sequential growth in 1Q22,” Vinh said.
Are Higher Inventories the New Normal?
An aggregate inventory of 68 days is above the five-year average, Vinh said. This represents the “new normal” as customers look to hold higher targeted levels of inventory to insulate themselves from supply chain disruptions, he said.
The increase also reflects bill-of-materials kitting issues, the analyst said. The analyst sees am overstatement of inventories, given the rising price environment, with fourth-quarter chip ASP rising 17 percent year-over-year.
KeyBanc said it is slightly increasing its 2022 IC revenue growth forecast to 13 percent, with higher ASPs offsetting lower unit assumptions.
KeyBanc’s Favorite Ideas
KeyBanc named Advanced Micro Devices, Inc., Nvidia Corporation, ON Semiconductor Corporation and Marvell Technology, Inc. as its favorite semiconductor ideas.
“Given softening concerns around consumer facing end-markets, we highlight secular driven ideas with outsized exposure to cloud, EV, and automotive, as well as access to increased capacity,” Vinh said.
The Semiconductor Ratings
KeyBanc’s Vinh has an Overweight rating and $165 price target for AMD shares.
The analyst rates Nvidia an Overweight and has a $350 price target on the shares.
The analyst has an Overweight rating and $95 price target for Marvell.
Vinh has an Overweight rating and $80 price target for ON Semiconductor shares.
By Shanthi Rexaline
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