Bernstein on Global Semiconductors: 'Analog Mixed Signals?'

Bernstein on Global Semiconductors: 'Analog Mixed Signals?'

The analyst commented: "Analog and mixed-signal / diversified semiconductor stocks have broadly outperformed YTD, with returns generally leading the SOX and S&P since the start of the year (Exhibit 1, Exhibit 2) as investors sought (once again) to play the 1H bottoming thesis. However absolute performance has been weak on all timeframes (1 month, YTD, and YoY) and they have generally lagged the indexes over the last month as broader macro concerns, tariffs etc have taken some wind out of the bottoming call (Exhibit 3).

YTD performance has varied across names with mixed hopes for bottoming. The “standard playbook” tends to have investors liking to buy bottoming estimates in analog. In that context we can see (some) signs though results are mixed, with some companies still seeing negative earnings revisions YTD (MCHP, STM, ON), while others have stabilized somewhat (TXN, NXPI, Silergy), and others appear to be on the other side with earnings growing YTD (ADI, Infineon, Renesas) (Exhibit 4). As is typical, while falling markedly in recent weeks multiples have mostly (inversely) followed these earnings trends, expanding as estimates fall and compressing as they rise with relatively muted stock performance as a result (Exhibit 5, Exhibit 6).

Investors are (once again) anticipating a Q2 bottoming scenario and 2H growth modeled for most analog companies that tend to be over-indexed to industrial and auto. This is not atypical this time of year (Q2 tends to be the seasonal bottom anyway) and industrial may be closer to bottoming from a YoY perspective just on weak compares (Exhibit 7); however automotive remains more of a question especially outside of China, and overall auto semis are not showing as much of a bottoming trend just yet (Exhibit 8). The majority of analog names have some sort of 2H rebound embedded in numbers, though overall recovery expectations vary by company. TXN and NXPI embed some near-term stability with a delayed snapback; consensus estimates appear seasonal(ish) for the next several quarters but with a significantly above-seasonal Q4 snapback in numbers (Exhibit 9, Exhibit 10). MCHP, STM, and Silergy have more traditional “snapback” scenarios modeled in, with numbers well below seasonal in the 1H and well above in the 2H (Exhibit 11, Exhibit 12, Exhibit 13). ADI, Renesas, and Infineon seem to be modeled as already into recovery, with the bounce-back starting now or next quarter (Exhibit 14, Exhibit 15, Exhibit 16). Conversely, ON is being modeled as remaining in pre-recovery, with numbers modeled mostly sub-seasonal through the year (Exhibit 17).

In our US coverage TXN and ADI estimates may have stabilized (with ADI into modest recovery?) in the near term but valuations (~30x or more) remain rich, and may limit upside if and when recovery picks up steam (Exhibit 18). NXPI is at least cheaper, though the magnitude of auto exposure continues to give us some pause. For Japan Semis, we maintain Outperform for Renesas. The cycle has clearly bottomed in Dec quarter with B/B at or above 1 since Nov 24, so revenues have stabilized with QoQ growth in Mar, and we expect further growth in Jun. Infrastructure is the major growth driver with Nvidia AI server power IC share gain. Margin took a one-time hit due to Altium accounting change, but should expand through the year with cost-cutting measures. At 12x P/E (on depressed E), we find it very cheaply valued.

For China Semis, we maintain Outperform for Silergy. We believe Silergy is a high quality long-term investment target now that it is back to secular growth driven by Auto Analog growth in China, and the current price provides a good entry point. We expect Silergy’s top line to grow at 25-30% CAGR, where auto will grow at ~60% CAGR. This will improve product mix and further boost GPM, while decreased R&D ratio should improve NPM. P/E on 2025 EPS might seem high at ~37X, but with ~60% growth in net income the stock will quickly re-rate to ~20X and making valuation cheap."

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