It’s a mixed bag for semiconductor stocks, says John Vinh, equity research analyst at KeyBanc Capital Markets.
“Despite a softening backdrop across most consumer-facing applications, broad-based demand trends remain healthy and robust,” he wrote in a commentary.
“Given the softening consumer backdrop in personal computers and smartphones, we were somewhat surprised by how healthy broad-based demand trends sounded in the channel.”
He was referring to KeyBanc’s quarterly supply-chain checks.
“Covid lockdowns in China are worsening and impacting both supply and demand,” Vinh said. That’s particularly true in the Shanghai area.
“We do ultimately believe that the broader semiconductor space is likely set up for a correction at some point (likely in the second half of 2022 or the first half of 2023), given softening demand in consumer end markets and the increasing inventory levels,” Vinh said
But non-consumer demand “remains healthy, and secular trends remain intact for 5G, electric vehicles, cloud computing, and machine learning/artificial intelligence, which we anticipate will result in a milder cyclical correction,” Vinh said.
“Additionally, we believe the non-cancellable, non-returnable (NCNR) backlog that many companies are sitting on is ultimately going to allow companies to … navigate a “softer” landing.”
The trend looks positive for Marvell Technology (MRVL) and On Semiconductor (ON), Vinh said. He rates both as overweight.
The trend looks mixed for Advanced Micro Devices (AMD) and Intel (INTC), Vinh said. He rates AMD as overweight and Intel as sector weight.
The trend looks negative for Nvidia (NVDA), Vinh said. But he rates it overweight.
As for Marvell, it will benefit from demand for cloud-related chips at Google, Amazon Web Services and Microsoft Azure in the second half of 2022, Vinh said. In the same period, Samsung and Nokia should go for Marvell’s 5G infrastructure chips, he said.
Turning to On, “broad-based demand remains healthy, [and] we believe ON has recently initiated additional price increases,” Vinh said. “The shift to ship and debit pricing agreements with distribution will allow better control and limit downside to pricing when a correction ensues.”
Looking at AMD, “positive takeaways include robust cloud demand trends and pull-in of
its next-generation server central processing unit Genoa ramp schedule,” Vinh said.
“Negatives include soft PC demand, share loss to INTC’s Alder Lake in desktop PCs and constrained Ajinomoto build-up film substrate supply.” ABF substrate is a key component in chip manufacturing.
As for Intel, “positive takeaways include robust cloud demand trends and share gains in desktop
PCs,” Vinh said. “Negatives include another slight slip in its Sapphire Rapids server CPU ramp schedule…, slowing PC demand and moderating China cloud.”
Turning to Nvidia, “headwinds in broader Europe due to hyperinflation concerns from the Russia/Ukraine war have led to softening demand in consumer graphic processing units…" Vinh said. “Additionally, the Covid lockdowns in China have been disruptive to supply.”
