Despite the long and outstanding run for the semiconductor segment, one thing has become quite apparent over the past decade. The industry has dramatically evolved and no longer is it simply about providing chips for personal computers and laptops. With automotive and industrial applications growing fast, smartphones growing ever more functional and video gaming and data center growth skyrocketing, the future remains very positive for the group.
In a series of new research reports, Deutsche Bank provides updates from meetings with top executives at semiconductor companies the firm covers, and while most remain confident on the future, some do acknowledge the cyclical nature of the segment. With that in mind, five top companies were highlighted, and all are rated Buy at Deutsche Bank.
This small cap company is a strong contender in the data center arena. Inphi Corp. (NYSE: IPHI) provides high-speed analog and mixed-signal semiconductor solutions for the communications, data center and computing markets worldwide.
Its end-to-end data transport platform delivers high signal integrity at leading-edge data speeds, addressing performance and bandwidth bottlenecks in networks, from fiber to memory. Inphi has solutions that minimize latency in computing environments and enable the rollout of next-generation communications infrastructure.
The company announced back in the spring that, along with Innovium, it is partnering to provide customers multiple highly scalable industry-leading 100 G to 400 G data center solutions to meet their explosive bandwidth demand growth.
The Deutsche Bank price target for the shares is $40, and the consensus target was last seen at $38.04. The stock closed trading on Thursday at $35.19 a share.
Last year the company announced a bold $6 billion bid to buy Cavium. Marvell Technology Group Ltd. (NASDAQ: MRVL) is a fabless supplier of mixed-signal and analog semiconductor products to a number of storage, computing and communication applications, including hard disk drives, personal computers, servers, Ethernet switches, printers and connectivity markets.
Top analysts around Wall Street are very positive on the company’s purchase of Cavium, and many feel the deal adds significantly to the growth element for the stock. The addition also helps make Marvell solidly positioned in data center, cloud, enterprise, security and 5G.
The company has cleared the final hurdle to acquire Cavium, as it received the necessary approval from China’s State Administration for Market Regulation. The company expects to complete the merger this month, but the trade issues need to be watched.
Shareholders receive a 1.29% dividend. Deutsche Bank has a $25 price target on the stock, but the posted consensus price objective is $27.45. The stock closed Thursday’s trading at $18.54.
Maxim Integrated Products
This company supplies some chips to Samsung for the red-hot Galaxy line. Maxim Integrated Products Inc. (NASDAQ: MXIM) designs, develops, manufactures and markets various linear and mixed-signal integrated circuits (ICs) worldwide. The company also provides a range of high-frequency process technologies and capabilities for use in custom designs. It primarily serves automotive, communications and data center, computing, consumer and industrial markets.
The Deutsche Bank team has favored Maxim for some time as the company continues to generate significant cash and targets 80% payout ratio. The company’s dividend yield is near its five-year average, and the company has grown its dividend in each of the past six years. The favorable view is based on expectations of continued strong growth in automotive with solid double-digit year-over-year growth and continued strength in its industrial segment.
Shareholders are paid a solid 3.19% dividend. The $67 Deutsche Bank price objective compares with the $63.68 consensus target price. The shares closed at $57.72 apiece on Thursday.
Monolithic Power Systems
This off-the-radar play could be offering continued upside potential. Monolithic Power Systems Inc. (NASDAQ: MPWR) designs, develops and markets integrated power semiconductor solutions and power delivery architectures for consumer, industrial, computing and storage, and communications market segments.
The company offers direct current (DC) to DC converter ICs used to convert and control voltages of various electronic systems, such as portable electronic devices, wireless LAN access points, computers, monitors, automobiles and medical equipment.
It also provides lighting control ICs for backlighting that are used in systems, which provide the light source for LCD panels in notebook computers, monitors, car navigation systems and televisions, as well as for general illumination applications. In addition, it offers alternating current (AC)/DC offline solutions for lighting illumination applications and AC/DC power conversion solutions for various end products that plug into a wall outlet.
Shareholders are paid a small 0.9% dividend. Deutsche Bank has set its price objective at $150. The consensus target is $159.50, and the shares ended trading on Thursday at $136.78.
Aggressive accounts may want to look at this smaller cap play. ON Semiconductor Corp. (NASDAQ: ON) is a vendor of analog power management, analog signal conditioning, standard logic ICs and discrete chips into the automotive, communications, computing, consumer, industrial and medical applications. The company is in the midst of a transformation from a seller of commodity discrete chips into higher value-added analog ICs, both through organic growth and acquisitions.
The analysts view ON Semiconductor as an underappreciated way for investors to benefit from the emergence of advanced driver-assistance systems and eventually autonomous driving. While the company is inherently levered (operationally and financially) and therefore subject to investor fears of cyclical volatility, many continue to see structural upside for the shares.
The Deutsche Bank price target is $27. The posted consensus target is $27.34, and the stock ended the most recent trading session at $19.51 per share.
Given the overall caution the Deutsche Bank team has on the industry, it may make sense to put on partial positions here and see how investors respond to third-quarter results. In addition, we are in the time of the year that is often precarious, so that should be factored in as well.