Chips play a significant role in emerging technologies like AI, IoT, and electric vehicles. Also, they are essential to breakthroughs in medicine, telecom, and climate solutions. Despite significant industry headwinds in 2022, the chip industry’s long-term outlook remains strong.
While semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (TSM) has witnessed significant investors’ attention, I think United Microelectronics Corporation (UMC), MaxLinear, Inc. (MXL), and CEVA, Inc. (CEVA) are also worth checking out.
The United States intends to grow its domestic capacity share from 11% in 2020 to 30% by 2030. As per industry reports, the global semiconductor industry’s revenue is expected to grow to $1 trillion by 2030.
Furthermore, the impact of government initiatives like CHIPS and Science Act has been very promising. As of December 2022, nearly $200 billion of private investments across 16 states were announced to increase domestic manufacturing capacity.
Headquartered in Hsinchu City, Taiwan, TSM is well-positioned in the industry. Moreover, TSM pays an annual dividend of $1.77, which translates to a yield of 1.94% at the current price. The company’s revenue increased 42.8% year-over-year to $19.93 billion in the fiscal fourth quarter, which ended December 31, 2022, while its EPS increased 78% year-over-year to $0.36.
TSM has topped the consensus EPS estimates in each of the trailing four quarters, which is impressive. The stock has gained 18.7% year-to-date to close the last trading session at $89.03.
Its no surprise that TSM has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. TSM also has an A grade for Quality and B for Sentiment and Momentum. Click here to access additional ratings for TSM’s Value, Stability, and Growth.
Let’s discuss UMC, MXL, and CEVA in detail:
United Microelectronics Corporation (UMC)
UMC is a global semiconductor foundry that operates through two segments: Wafer Fabrication and New Business. It offers high-quality IC fabrication services, focusing on logic and various specialty technologies to all electronics industry sectors. UMC is headquartered in Hsinchu City, Taiwan.
On March 2, UMC unveiled its 28eHV+ platform, the newest enhancement to its industry-leading 28nm embedded high voltage (eHV) technology.
By delivering greater power efficiency and premium visual quality, 28eHV+ is an ideal display driver for power next-generation displays used in smartphones, virtual and augmented reality devices, and IoT applications and should boost the company’s revenue streams.
On February 1, UMC and Cadence Design Systems, Inc. (CDNS) announced that the Cadence 3D-IC reference flow, featuring the Integrity 3D-IC Platform, has been certified for UMC’s chip stacking technologies, enabling faster time to market.
Osbert Cheng, vice president of device technology development & design support at UMC, said, “Cost-effectiveness and design reliability are the pillars of UMC’s hybrid bonding technologies, and this collaboration with Cadence provides mutual customers with both, helping them reap the benefits of 3D structures while also accelerating the time needed to complete their integrated designs.”
UMC’s forward EV/EBITDA of 4.85x is 62.3% lower than the industry average of 12.85x. Its forward non-GAAP P/E multiple of 10.57 is 47.4% lower than the industry average of 20.09.
UMC’s operating revenue increased 14.8% year-over-year to $2.21 billion in the fourth quarter that ended December 31, 2022. The company’s net income increased 19.5% year-over-year to $623 million, and earnings per share increased 19% year-over-year to $0.05.
UMC’s revenue is expected to be $1.84 billion for the current quarter ending March 2023. The company’s EPS for the same quarter is expected to be $0.17. The company has an impressive earnings surprise history, surpassing the consensus revenue estimates in three of the trailing four quarters.
UMC has gained 28% over the past six months to close its last trading session at $8.32.
UMC’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
UMC also has an A grade for Quality and a B for Value and Momentum. It is ranked #5 in the Semiconductor & Wireless Chip industry.
To access additional ratings for UMC’s Stability, Growth, and Sentiment, click here.
MaxLinear, Inc. (MXL)
MXL engages in the provision of communications systems-on-chip solutions for the connected home, wired and wireless infrastructure, and industrial and multi-market applications worldwide.
On March 2, MXL announced the production availability of the Keystone family of DSPs, the industry’s first 5nm CMOS 800Gbps PAM4 DSP for hyperscale data center applications, that enables small form factors, offers high integration, best-in-class power consumption, and has the flexibility to address multiple optical and electrical interconnect use cases.
Through this, the company aims to address customers’ critical needs for low-power, highly integrated, high-performance interconnect solutions in next-generation hyper-scale cloud networks.
On February 27, MXL announced it had partnered with EdgeQ on an all-in-one small cell reference design, converging 4G, 5G, and computing onto a single software-defined platform. The company believes small cell deployments are poised to skyrocket as network providers look to increase service reliability and robustness.
MXL forward non-GAAP P/E of 11.99 is 40.3% lower than the industry average of 20.09x. Its forward EV/EBITDA multiple of 7.92 is 38.4% lower than the industry average of 12.85.
During the fourth quarter that ended December 31, 2022, MXL’s net revenue increased 17.2% year-over-year to $290.59 million. Its non-GAAP gross profit rose 13.2% year-over-year to $173.06 million. Its non-GAAP net income grew 26.9% year-over-year to $88.53 million, while its non-GAAP net income per share rose 24.4% year-over-year to $1.07.
Street expects MXL’s EPS for the fiscal first quarter (ending March 2023) to be $0.70. The company’s revenue is estimated to be $250.12 million in the same quarter. Additionally, MXL has topped consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 1.6% year-to-date, closing the last trading session at $34.49.
It is no surprise that MXL has an overall rating of B, which equates to a Buy in our POWR Ratings system.
It also has a B grade for Value and Quality. MXL is ranked #16 in the same industry.
Beyond the POWR ratings stated above, we have also rated MXL for Momentum, Sentiment, Growth, and Stability. Get all the MXL ratings here.
CEVA, Inc. (CEVA)
CEVA licenses wireless connectivity and smart sensing technologies to semiconductor and original equipment manufacturer (OEM) companies worldwide. The company licenses its technology through a direct sales force.
On February 23, CEVA announced its 5th generation CEVA-XC DSP architecture and its most efficient to date, the CEVA-XC20.
Extending the company’s leadership in DSPs, the new CEVA-XC20 is based on a groundbreaking vector multi-threaded massive compute technology that is designed to address next-generation 5G-Advanced workloads across a broad spectrum of use case and should boost the company’s topline.
CEVA’s forward Price/Book of 2.81x is 24.9% lower than the industry average of 3.74x.
CEVA’s licensing, NRE, and related revenue increased 5.4% year-over-year to $22.48 million in the fourth quarter that ended December 31, 2022. The company’s non-GAAP net income increased 5.6% year-over-year to $5.60 million, while non-GAAP earnings per share increased 4.5% from the previous year’s quarter to $0.23.
Analysts expect CEVA’s EPS to be $0.12 in the current fiscal quarter ending March, while its revenue is expected to come in at $31.19 million. Also, it has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 25.3% year-to-date to close the last trading session at $32.04.
CEVA has an overall B rating, equating to a Buy in our proprietary rating system.
CEVA is graded a B in Growth, Stability, and Quality. It is ranked #22 in the same industry.
In addition to the POWR Rating grades highlighted above, CEVA’s rating for Sentiment, Value, and Momentum rating can be seen here.
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UMC shares were trading at $8.33 per share on Friday afternoon, up $0.01 (+0.12%). Year-to-date, UMC has gained 27.57%, versus a 5.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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