Following a rough 2015 in which weak PC demand, slowing smartphone growth, plunging memory prices, and a late-year inventory correction all weighed, Wells Fargo's David Wong thinks a chip industry recovery is on the way.
His rating for the sector has been upped to Overweight from Market Weight, and his ratings for Micron (NASDAQ:MU), Analog Devices (NASDAQ:ADI), and Microsemi (NASDAQ:MSCC) in particular have been raised to Outperform. Outperform ratings are reiterated for Intel (NASDAQ:INTC), Qualcomm (NASDAQ:QCOM), Linear (NASDAQ:LLTC), AMD, Xilinx (NASDAQ:XLNX), and SunEdison Semi (NASDAQ:SEMI).
Wong argues 2016 chip industry growth could be as high as 7%
(with growth reaching double-digits by year's end), and that 8%-14% growth is possible in 2017. Gartner estimates industry revenue fell 1.9% in 2015 to $333.7B.
Wong: "Over the last 5 years 2010-2015, semiconductor industry growth has tracked below global GDP for the most part. We think this has created significant pent-up demand created by the deferral of electronics goods purchases and aging of the installed base of electronics systems ... We think that there could well be the first signs of improvement in the year/year comparisons at some point in the June 2016 quarter in the many of the broader chip markets, including the industrial, communications infrastructure and PC markets."
Some expectations for a recovery might already be priced in: The Philadelphia Semi Index (NASDAQ:SOXX) is up 18% from a February low of $74.80. However, it's still down 13% from a June high of $101.80.
Earlier today, Broadcom (the company produced by the Avago/Broadcom merger) posted big gains after beating January quarter estimates and issuing healthy April quarter guidance. On its earnings call, Broadcom forecast solid April quarter growth for its wired infrastructure (telecom/networking chip) segment, and a 2H16 recovery for its mobile chip segment (recently hurt by soft iPhone-related demand). More cautious outlooks were provided for Broadcom's storage and industrial segments.
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