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Industry Spotlight

Intel, Samsung, TSMC: which semiconductor share price to back in 2020?

Semiconductor stocks have continued to charge, despite a 2019 dominated by the Huawei controversy, trade wars and volatile consumer demand. What does 2020 hold for Intel, Samsung and TSMC’s share prices?

The past 12 months have been good for the PHLX Semiconductor index [SOX] – made up of 30 semiconductor firms – which has soared from $1,131.47 at the start of 2019 to $1,855.80 as of 30 January.

Despite the trade tensions between the US and China throughout last year hitting demand for tech products, as well as difficulty for producers due to sanctions on Chinese telecoms giant Huawei over national security fears, the index has seen an overall 64% price rise.

64%

Rise of the PHLX Semiconductor index over the past year

  

As these trade tensions continue to ease, analysts expect 2020 will give a further lift to semi-conductor share prices.

Industry tracker IDC predicts global smartphone shipments will be around 1.4 billion units this year, up 1.5% from 2019. Chip prices, meanwhile, which suffered last year from oversupply and stuttering smartphone demand, should begin to rebound.

Credit Suisse also sees demand being strong as a result of the upcoming rollout of 5G, higher Internet of Things adoption, increased data centre demand and new game console launches. “Stocks are recovering from the prior decade’s de-rating and returning to pre-crisis valuations that can sustain,” said analysts Randy Abrams and Haas Liu.

“Stocks are recovering from the prior decade’s de-rating and returning to pre-crisis valuations that can sustain” - analysts Randy Abrams and Haas Liu

 

However, there is a risk that with higher share price valuations “any disappointment from product cycle ramps or macro shocks could lead to potential short-term pullbacks”.

With this in mind, how are the main players performing? Opto puts Intel, TSMC and Samsung’s share prices under the spotlight.

 

INTEL

The chipmaker’s shares dropped as low as $43 last June before rallying to $66.47 (as of 30 January). The world’s largest semiconductor producer released its fourth-quarter earnings on Thursday, January 23, surpassing expectations by reporting revenues of $20.21bn, up 8.3% compared to Q4 2019’s $18.66bn.

Intel [INTC] also posted earnings per share of $1.52, beating estimates of $1.24 per share and the year-ago figure of $1.28.

 

 

 

Mizuho analyst Vijay Rakesh, who has a buy rating and a $65 price target, said Intel should keep growing its data centre business despite pressure from rival Advanced Micro Devices [AMD].

“If Intel is able to successfully navigate 10 nanometers issues [related to the production process of semiconductors] into 2020 and is able to hold off AMD with continued price cuts, we see Intel maintaining its strong market share position moving forward,” Rakesh said.

Intel, with a market dominance in the Internet of Things CPU market, is also set to benefit from 5G going mainstream and new next-generation 7-nanometer CPUs in 2021.  “Ahead of this landmark new product line launch, investors will likely bid up INTC stock in anticipation of big growth from these new products,” Luke Lango wrote in Business Insider.

Wedbush analyst Matt Bryson, who gave an underperform rating and a $46 price target, is less enthused.

“We continue to remain cautious around Intel given our belief that the company’s continued misexecution [sic] - whether process/product delays or inability to fulfil customer demand - will eventually weigh on future share,” he said. “We continue to believe that Intel will eventually be forced to contend with revenue and GM declines, a result that will lead to future EPS shortfalls.”

“We continue to believe that Intel will eventually be forced to contend with revenue and GM declines, a result that will lead to future EPS shortfalls” - Wedbush analyst Matt Bryson

TSMC

Taiwan Semiconductor Manufacturing Company [TSM], Apple’s [AAPL] main chipmaker, saw its share price rise from $36.20 at the start of January 2019 to close the year at $58.10 – an impressive 60.5% gain.

The world’s largest semiconductor foundry also started the new year well. It recently reported a 10.6% rise in fourth-quarter revenue to $10.39bn and a 16.1% profit leap to $3.88bn driven by both smartphone and data centre demand.

 

 

 

For the next quarter, it forecasts revenue of between $10.2bn and $10.3bn, which would represent a 43% increase on the $7.1bn for the same period a year ago, helped by the rollout of 5G enabled smartphones.

Despite the good news, the stock has dropped 1.5% so far this year (through 30 January).

Chairman Mark Liu played down fears that tighter export restrictions to Chinese telecoms group Huawei – its second-biggest customer – would potentially hit shipments and damage the chipmaker’s numbers. Liu said it would replace lost income from Huawei with orders from other customers ready to join the 5G boom.

However, Bernstein analyst Mark Li is concerned. “TSMC said any disruption will be short-lived. We find that too optimistic,” he said.

KGI analyst Laura Chen was more bullish. “TSMC’s position in advanced technology nodes remains solid given its greater capacity, yield rate control, execution and diversified customer base.”

“TSMC’s position in advanced technology nodes remains solid given its greater capacity, yield rate control, execution and diversified customer base” - KGI analyst Laura Chen

 

SAMSUNG

The world’s largest producer of memory chips has recently announced that net profit for fourth quarter was down 38.5% year-on-year to $4.4bn, following last quarter’s 52% year-on-year slide. However, this still beat analyst forecasts, as demand was boosted by a bottoming out of chip prices. Samsung [005930] also reported revenue of $50.7bn, a 1.1% increase from the past year. The company’s share price is somewhat muted, rising 1.6% since the start of the year (through 31 January).

Korea Investment & Securities analyst Yoo Jong-woo expects operating profit in Samsung’s semiconductor division to climb 85% this year, while analysts polled by Refinitiv SmartEstimate expect Samsung’s annual profit to surge nearly 40% in 2020.

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