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Semiconductors Radio Frequency Industry Prospects Hurt By Trade War
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The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide Radio Frequency (RF) solutions, Front-end Modules (FEMs), low-noise amplifiers, diodes, multi-chip modules (MMICs) and optical components. The industry also offers surface acoustic wave (SAW), bulk acoustic wave (BAW) and film bulk acoustic resonator (FBAR) filters, to enable smartphone devices to function more efficiently in congested RF spectrum.
The industry participants serve a wide array of industries with their solutions finding ample application in 5G and smartphone equipment, aerospace and defense, optical networks, cellular base stations, automotive and smart home applications.
The industry players utilize robust wafer fabrication technologies to gain competitive edge over peers. The companies also leverage ZigBee, Bluetooth Low Energy (BLE), Thread, silicon germanium and Gallium Nitride (GaN) technologies across their portfolio to stay abreast of competition.
Here are the three major themes in the industry:
The ongoing trade war between the United States and China has created an uncertain environment that is not conducive for investments at least in the near term. Notably, the industry participants generate a significant portion of their revenues from China. As the direct revenue sources are now under the purview of tariffs, the concern over the prospects of the industry has increased in recent times. In fact, per IDC, overall semiconductor revenue is anticipated to decline 7.2% to reach $440 billion in 2019 globally, from $474 billion reported in 2018, owing to tough trade relations and high inventory levels. Markedly, the decline comes "after three years of consecutive growth," which remains a major concern. Moreover, rising U.S. protectionism is hurting growth prospects. However, a recent tweet from President Trump suggesting trade negotiations between the United States and China is instilling optimism regarding a plausible truce.
A saturated consumer electronic market, particularly the smartphone market which is sluggish and anticipated to decline this year is likely to hinder the industry’s growth prospects. Additionally, volatility in foreign exchange primarily owing to current macro-economic scenario and headwinds in other emerging end markets does not bode well for the industry participants.
Nonetheless, the industry’s growth is expected to accelerate in the days ahead on the back of robust demand for RF semiconductor products due to the rapid adoption of cloud, IoT, wearables, drones, virtual reality/ augmented reality (VR/AR) devices, autonomous cars, and advanced driver assisted systems (ADAS). Further, accelerated deployment of 5G technology holds promise. Notably, RF Semiconductors are setting the pace for technology modernization, consequently digitizing aspects like connectivity, healthcare, transport, defense, among others, which augurs well considering the long-term prospects.
Zacks Industry Rank Indicates Grim Near-Term Prospects
The Zacks Semiconductors - Radio Frequency Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #245, which places it at the bottom 4% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised downward by 37.5%.
Despite the bleak near-term prospects of the industry, we will present a Semiconductors - Radio Frequency stock that can be retained in one’s portfolio given its long-term prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector and S&P 500
The Zacks Semiconductors - Radio Frequency Industry has witnessed an unimpressive performance compared with both the S&P 500 and its own sector in the past year.
Looking at shareholder returns over the past year, it appears that the ongoing tariff war between the United States and China, and growing U.S. protectionism has been dampening investor sentiment toward the Semiconductors – RF industry.
The industry has lost 28.4% over this period against the S&P 500’s growth of 5.3%. Meanwhile, the broader sector has declined 0.9%.
One Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing Semiconductors - Radio Frequency stocks, the industry is currently trading at 12.72X, lower than the S&P 500’s 16.69X and the sector’s 19.15X.
Over the past five years, the industry has traded as high as 18.82X and as low as 10.01X, with the median being at 12.93X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Forward 12-Month Price-to-Earnings (P/E) Ratio
Bottom Line
Negative tariff impact is acting as a deterrent to the prospects of the Zacks Semiconductors - Radio Frequency Industry.
Nevertheless, we are presenting one stock with a Zacks Rank #3 (Hold) that investors may want to retain.
Huntersville, NC-based Akoustis Technologies, Inc. (AKTS - Free Report) has returned 34.6% on a year-to-date basis. The Zacks Consensus Estimate for current-year bottom line has remained unchanged at a loss of $1.13 per share over the past 30 days.
Price and Consensus: AKTS
Meanwhile, we would recommend investors to stay away from Qorvo, Inc. (QRVO - Free Report) and Skyworks Solutions, Inc. (SWKS - Free Report) , currently carrying Zacks Rank #5 (Strong Sell) and #4 (Sell), respectively, for the time being. Notably, both the prominent players in the Radio Frequency-Semiconductor market recently trimmed their respective financial outlook on Huawei headwinds, which remains a major concern. Significant customer concentration from Apple and Huawei weighs on the near-term growth prospects of both the companies.
Qorvo stock has shed 22% in the past year. Moreover, the consensus estimate for current-year earnings for the Greensboro, NC-based company has declined 16.5% to $5.01 over the past 30 days.
Price and Consensus: QRVO
Skyworks stock has slumped 22.8% in the past year. Moreover, the consensus estimate for current-year earnings for the Woburn, MA-based company has been revised downward 6.5% to $6.19 over the past 30 days.
Price and Consensus: SWKS
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Image: Bigstock
Semiconductors Radio Frequency Industry Prospects Hurt By Trade War
The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide Radio Frequency (RF) solutions, Front-end Modules (FEMs), low-noise amplifiers, diodes, multi-chip modules (MMICs) and optical components. The industry also offers surface acoustic wave (SAW), bulk acoustic wave (BAW) and film bulk acoustic resonator (FBAR) filters, to enable smartphone devices to function more efficiently in congested RF spectrum.
The industry participants serve a wide array of industries with their solutions finding ample application in 5G and smartphone equipment, aerospace and defense, optical networks, cellular base stations, automotive and smart home applications.
The industry players utilize robust wafer fabrication technologies to gain competitive edge over peers. The companies also leverage ZigBee, Bluetooth Low Energy (BLE), Thread, silicon germanium and Gallium Nitride (GaN) technologies across their portfolio to stay abreast of competition.
Here are the three major themes in the industry:
Zacks Industry Rank Indicates Grim Near-Term Prospects
The Zacks Semiconductors - Radio Frequency Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #245, which places it at the bottom 4% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised downward by 37.5%.
Despite the bleak near-term prospects of the industry, we will present a Semiconductors - Radio Frequency stock that can be retained in one’s portfolio given its long-term prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector and S&P 500
The Zacks Semiconductors - Radio Frequency Industry has witnessed an unimpressive performance compared with both the S&P 500 and its own sector in the past year.
Looking at shareholder returns over the past year, it appears that the ongoing tariff war between the United States and China, and growing U.S. protectionism has been dampening investor sentiment toward the Semiconductors – RF industry.
The industry has lost 28.4% over this period against the S&P 500’s growth of 5.3%. Meanwhile, the broader sector has declined 0.9%.
One Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing Semiconductors - Radio Frequency stocks, the industry is currently trading at 12.72X, lower than the S&P 500’s 16.69X and the sector’s 19.15X.
Over the past five years, the industry has traded as high as 18.82X and as low as 10.01X, with the median being at 12.93X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Forward 12-Month Price-to-Earnings (P/E) Ratio
Bottom Line
Negative tariff impact is acting as a deterrent to the prospects of the Zacks Semiconductors - Radio Frequency Industry.
None of the stocks in the industry currently carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Nevertheless, we are presenting one stock with a Zacks Rank #3 (Hold) that investors may want to retain.
Huntersville, NC-based Akoustis Technologies, Inc. (AKTS - Free Report) has returned 34.6% on a year-to-date basis. The Zacks Consensus Estimate for current-year bottom line has remained unchanged at a loss of $1.13 per share over the past 30 days.
Price and Consensus: AKTS
Meanwhile, we would recommend investors to stay away from Qorvo, Inc. (QRVO - Free Report) and Skyworks Solutions, Inc. (SWKS - Free Report) , currently carrying Zacks Rank #5 (Strong Sell) and #4 (Sell), respectively, for the time being. Notably, both the prominent players in the Radio Frequency-Semiconductor market recently trimmed their respective financial outlook on Huawei headwinds, which remains a major concern. Significant customer concentration from Apple and Huawei weighs on the near-term growth prospects of both the companies.
Qorvo stock has shed 22% in the past year. Moreover, the consensus estimate for current-year earnings for the Greensboro, NC-based company has declined 16.5% to $5.01 over the past 30 days.
Price and Consensus: QRVO
Skyworks stock has slumped 22.8% in the past year. Moreover, the consensus estimate for current-year earnings for the Woburn, MA-based company has been revised downward 6.5% to $6.19 over the past 30 days.
Price and Consensus: SWKS
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>