sankai
Investment bank Barclays was busy on Monday, changing the ratings on several semiconductor companies, including Texas Instruments (NASDAQ:TXN) and Analog Devices (NASDAQ:ADI), with the firm noting that while chip industry is approaching a bottom, but it's not quite there yet.
Analyst Blayne Curtis changed his rating on Texas Instruments (TXN) to equal weight, while also lowering his ratings on Analog Devices (ADI), NXP Semiconductors (NASDAQ:NXPI) and Qorvo (NASDAQ:QRVO) to equal weight. He also downgraded Silicon Laboratories (SLAB) to underweight.
"We are actively looking for a bottom to get more positive and see it closer in some end markets than others, but still believe it is too early to pull the trigger across the board," Curtis wrote in a note to clients.
The analyst added that there is the expectation of "material cuts" through earnings season in areas like radio frequency, memory and PC, but there needs to be even more cuts for the firm to get positive.
Curtis also pointed out that the analog portion of the chip industry has not even started to cut estimates and while there may not be lowered guidance from this space, there could be signs of changes to order books, cancellations and inventory.
"In all, the downgrades read fairly negative but we are actually looking to get more positive in areas such as memory, PCs and handsets, where we are further along the reset process," Curtis explained.
Analog Devices: Curtis moved Analog Devices (ADI) to equal weight on expectations that the automotive space and industrial areas will slow, due to some slowing orders and softening in the channel sell through, along with "modest" cancellations.
"With inventories building (+24% over the last 2 quarters) and supply opening up, it’s only a matter of time before orders/backlog come down to match weaker real demand," Curtis wrote.
NXP Semiconductors: Curtis cut his rating on NXP Semiconductors (NXPI) as he does not expect automotive strength to outweigh weakness in other areas.
The analyst said that automotive now accounts for more than 50% of NXP's (NXPI) total revenue and the opportunity in domain and zonal processors could be worth between $3B and $5B by the end of the decade.
"However, this driver will take time and NXPI likely needs to see one of the larger corrections in Analog for the rest of the business," Curtis explained.
Texas Instruments: Curtis upgraded Texas Instruments (TXN) as he expects the company to experience a "smaller correction" than most and should be a beneficiary from the U.S. CHIPS Act.
"[Texas Instruments] should be a primary beneficiary of the Chips Act and a more muted 2022 due to supply constraints should lead to a smaller EPS correction vs. peers," Curtis wrote, adding that its valuation also looks better than the rest of the analog space, given that it trades in-line with its pre-COVID median multiple, while the rest of them still trade above.
Silicon Laboratories: Curtis lowered his rating on Silicon Laboratories (SLAB) to underweight due to its pricing weakness and high consumer exposure, along with a valuation that is still considered "too high."
"We understand the [long-term] IoT growth story but Silicon Laboratories is not immune from the building cyclical correction," Curtis wrote, adding that there has been acknowledgement by company management of some volatility in bookings.
Qorvo: Qorvo (QRVO) was also downgraded to equal weight, as Curtis believes the company, along with the rest of the RF space, "has been punished heavily amid weakness in the handset market."
He noted that the company has outperformed Skyworks Solutions (SWKS) since concerns of iPhone production cuts were raised in late September, but noted it has lower exposure to the iPhone than Skyworks, while being more exposed to Android, which is in worse shape than the iPhone.
The analyst added there is not yet a catalyst to signal a bottom and there is "more upside" for Skyworks (SWKS) through earnings.
Last week, Texas Instruments (TXN) declared its quarterly dividend of $1.24 per share, payable to shareholders of record as of October 31 on November 15.
Analysts are largely cautious on Texas Instruments (TXN). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a HOLD. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates TXN a HOLD.