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COVID-19 caused by the new coronavirus is having far-reaching consequences for individuals, corporations and the global economy at large. An analyst at UBS sifted through the semiconductor space to see how each of these companies will cope up under three potential macroeconomic scenarios.
The Scenarios
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Analyst Timothy Arcuri considered for his analysis three potential macroeconomic scenarios set forth by UBS' Global Economic/Strategy team.
Baseline: Situation coming under control in four to six weeks; China supply chain limping back to normalcy by the end of March; disruptions persisting in Korea, Japan and Italy
Intermediate Downside: Infections multiply 1,000 times but things brought under control by the end of June.
Severe Downside: About 16% of the global population affected with a much higher mortality rate and disruptions running into the third quarter.
The Thesis
Consumer-focused segments such as smartphones are likely to be impacted more, while enterprise, infrastructure, or hyperscale fundamentally are more resilient, Arcuri said in a Friday note.
The analyst noted that semiconductor multiples have compressed back to five-year average levels, although remaining about 8% above 10-year averages. Intel Corporation (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD) and Marvell Technology Group Ltd. (NASDAQ:MRVL) are now essentially discounting UBS' severe downside scenario, Arcuri said.
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Due to the largest segments of Intel and AMD's businesses being consumer-focused, the markets have punished these stocks, he added. The analyst, however, believes the companies' leverage to Data Center makes them somewhat resilient to any supply-related disruption and a potential fallout.
The analyst sees Marvel also as being somewhat insulated due to its exposure to Infrastructure and Storage markets.
Arcuri said he believes KLA Corp (NASDAQ:KLAC) and Texas Instruments Incorporated (NASDAQ:TXN) have only 10% downside if the severe-case plays out. Texas Instruments despite its consumer exposure through autos, is insulated to some extent due the degree of correction the stock underwent.
However, Qorvo Inc (NASDAQ:QRVO) and Skyworks Solutions Inc (NASDAQ:SWKS) have about 20% additional downside to UBS' severe-case due to their high smartphone exposure, the analyst added.
Among semiconductor production equipment stocks, Applied Materials, Inc. (NASDAQ:AMAT) has the most downside in the severe-case scenario, while KLA has the least.
Memory chipmaker Micron Technology, Inc. (NASDAQ:MU), according to Arcuri, has mid-teens downside. However, due to UBS' bullishness, the analyst believes risk-reward is highly attractive for Micron investors.
Ratings/Price Targets
- Intel: Buy/$75
- AMD: Neutral/$52
- KLA: Sell/$145
- Texas Instruments: Sell/$117
- Qorvo: Neutral/$110
- Skyworks: Neutral/$105
- Applied Materials: Sell/$51
- Micron: Buy/$75
Related Links
5 Reasons To Stay Positive On Intel
Why AMD's Coronavirus Impact Could Be Worse Than Intel, Nvidia
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.