Key Takeaways From Rosenblatt's View On Chipmakers' Earnings

Key Takeaways From Rosenblatt's View On Chipmakers' Earnings
  • Rosenblatt analyst Kevin Cassidy highlighted some key takeaways from last week's semiconductor earnings.
  • Last week's earnings reports made it clear that companies exposed to the higher-end of markets saw their earnings holding up better. 
  • Most management teams pointed to an inventory correction phase starting, leading to a cautious stance for 2023.
  • He believes exposure to the higher performance markets such as AI, 5G, and EV automotive have driven the better-than-expected numbers. 
  • ON Semiconductor Corp ON (Buy, Price Target $80) increased its silicon carbide (SiC) revenue expectations for 2023, while STMicroelectronics NV STM maintained its forecasted revenue and upped its estimate during its May Investor Day. The key point is that the EV automobile market is quickly adopting SiC, moving the technology into the mainstream, and driving new growth.
  • Rambus, Inc RMBS (Buy, PT $38) reported an 11% sequential increase in server DRAM interface products. He saw the combination of DDR5 and CXL stimulating the DRAM market in 2023.
  • Qorvo, Inc's QRVO (Neutral, PT $110) and Skyworks Solutions, Inc's SWKS (Buy, PT $190) earnings reports were very different for companies with similar products due to their difference in market exposure. The critical difference is Skyworks, with ~55% exposure to Apple Inc AAPL, vs. Qorvo's ~30%. The September quarter is seasonally strong for the Apple supply chain. High exposure to the low-to-mid-tier Chinese OEM handsets resulted in weak outlooks.
  • In the face of weakening PC and handset markets, Synaptics Inc's SYNA (Buy, PT $220) turned in strong June quarter results. The company's 3-year transformation to ~70% of revenue exposed to IoT from ~80% exposure to PC and handsets allowed for the company to maintain a 60%+ gross margin. AI at the edge, along with connectivity, is now a profitable large, and growing market.
  • Due to Western Digital Corp's WDC (Neutral, PT $45) relatively high exposure (~45%) to consumers, PC, and handsets, the company is receiving the brunt of the inventory correction. WDC worked on growing the Enterprise SSD market share to 16% over the next three years. 
  • Broad-based semi-plays Lattice Semiconductor Corp LSCC (Buy, PT $95), Microchip Technology Inc MCHP (Buy, PT $125), and Monolithic Power Systems, Inc MPWR (Buy, PT $620) reported solid earnings and outlook. He believes the results and outlook indicate structural demand strength outside of consumer-centric PC, consumer, and smartphone market segments. Interestingly, demand dynamics may be accelerating, with supply continuing to be problematic for the next several quarters.
  • Advanced Micro Devices, Inc AMD (Buy, PT $200) also reported earnings with a data center view that he saw as an epic market share reversal of fortunes with Intel Corp's INTC slow-motion implosion. He believes the Street has yet to fully recognize this zero-sum game in which AMD data center share (~10% share in 2021 and ~20% in 2Q22) will likely go over 50% in the next 18 months at $1 earnings per share per 10% segment share.
  • He added that Intel's business model is fundamentally unsound in an environment of less than 50% data center share regardless of government and Euro subsidies in non-core product areas.
  • Price Action: ON shares traded lower by 1.11% at $66.88 on the last check Monday.

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