Weekly Semiconductor Update – AMD, AMAT, BRCM, CREE, MU, NVDA

Semiconductor stocks have been one of the top performing sectors in 2014, significantly outperforming the S&P 500 index year to date.  As the week opened, the Philadelphia Semiconductor Index (Sox) was up 16% year to date, versus the S&P advance of 6% over the same interval.

The Semiconductor Industry Association reported last Friday (October 3rd) that, at $28.4 billion, the global semiconductor sales in August witnessed an increase of 9.4% over the prior year. The semiconductor industry saw month-over-month growth across all regions and most product categories. Gartner has just updated its forecast and now expects the semiconductor market to grow 7.2% in 2014, up from its previous forecast of 6.7% growth. Brokerage and other analysts have estimates ranging from 8% to 12%.

As we go to press, the Sox is sharply down (over 5%) on the news that Microchip (MCHP, not under coverage) has pre-announced a significant revenue miss for its September quarter ($529.3 million versus the prior guidance of $560.0 to $575.9 million). A leading provider of microcontrollers with over 80,000 customers, the company attributed the miss to an unexpected decrease in demand from China and suggested this was the first indication that the next industry correction has begun.

Because the company reports distribution sales on a sell-through basis (i.e, when its distributors sell the products to their customers), it is recognized as a leading indicator of future demand. Clearly investors believe this to be the case: the Sox has closed down a sharp 41 points (6.9%) to 561. It began the week near 620.

Below is a weekly update for some of the technology companies that Trefis covers.

See Our Complete Analysis for These Companies Here

AMD

AMD (NYSE:AMD) appointed Dr. Lisa Su as president and CEO and member of the board of directors (effective immediately) as part of its transition plan, last week. The stock price declined more than 10% as the company was downgraded by few analysts who felt that the leadership change could be a sign that AMD’s turnaround may be taking longer than anticipated. Our valuation of $4.17 is now over 40% above the current market price. The company’s current market cap is around $2.3 billion. We forecast AMD’s 2014 revenue to increase to $5.4 billion and net income to turn positive by year end. Our GAAP and non-GAAP diluted EPS estimates stand at $0.15 and $0.37, respectively. We will update AMD’s valuation after the Q3 2014 earnings release on October 15.

Applied Materials

Last week, Applied Materials’ (NASDAQ:AMAT) board approved a quarterly cash dividend of $0.10 per share payable on December 11, 2014 to stockholders of record as of November 20, 2014. Our valuation of $22 ($27 billion market cap) for Applied is at a slight premium to the current market price. We forecast the company to report revenue and net income of approximately $10 billion and net income of $1 billion for calendar year 2014. Our fiscal year 2014 (ended October) estimate for non-GAAP EPS stands at $1.23, compared to the market consensus of $1.06.

Broadcom

Broadcom (NASDAQ:BRCM) introduced the industry’s first 40GbE quad port gearbox PHY. (Read Press Release) Broadcom’s stock traded between the $38 – $39 last week. Our valuation of $39 for Broadcom is in line with the current market price (market cap of $24 billion). Our 2014 revenue and net income estimates for the company stand at $8.7 billion and 720 million respectively. Our non-GAAP diluted EPS forecast is $2.98, as compared to the market consensus of $2.55. We will update our model after the Q3 2014 earnings, to be released on October 21.

CREE

Leading LED manufacturer, Cree (NASDAQ:CREE) achieved a major production milestone with its recent accreditation as a U.S. Department of Defense (DoD) Category 1A Trusted Foundry (the highest designation awarded by the DoD) for its 100-mm RF GaN facility in Durham, NC. (Read Press Release)

Cree’s stock price has been on the downhill since the company announced its preliminary results for Q1 2015. (Read: Cree’s Stock Price Declines By 12% On Weak Q1’15 Preliminary Results) The stock price declined by approximately 8% last week. Our valuation of $58 for the company is now at a more than 60% premium to the current market price. We will update our valuation after the full Q1 2015 earnings release on October 21. For calendar year 2014, we forecast Cree’s revenue and net income at $1.77 billion and $160 million, respectively. For fiscal year 2014 (ended June), we estimate non-GAAP diluted EPS of $1.87 as compared to the market consensus of $1.85. (Read: Here’s Why We Believe Cree Is Still Worth $58)

Micron

Leading memory chipmaker, Micron Technology (NASDAQ:MU) launched a software developer kit for its Automata Processor (AP), with which developers can design and test advanced applications in various areas. (Read Press Release) Our $32 valuation for Micron is marginally above the current market price. The company has a market cap of nearly $33 billion.For calendar year 2014, we forecast revenue, net income and diluted non-GAAP net income of approximately $17 billion, $2.4 billion and $3.15, respectively.

Nvidia

Last week, IBM unveiled the Power S824L system, its data processing powerhouse that integrates the NVIDIA Tesla Accelerated Computing Platform – Tesla GPUs. Nvidia (NASDAQ:NVDA) announced that its newly released next-gen Quadro GPUs are now available in the latest professional workstations from Dell, HP and Lenovo. Nvidia also announced the extension of its 10th-generation GPU architecture – Maxwell – to notebooks. The company is showcasing new vehicles with electronic systems powered by its mobile processors at the ongoing Paris Auto Show. Last week, the U.S. International Trade Commission (ITC) voted to start investigation to decide whether certain Samsung products should be blocked from entering the country because they infringe GPU patents owned by NVIDIA. (Read Press Releases)

Nvidia’s stock fluctuated between $17 – $18 last week. Our price estimate of $19 for Nvidia is marginally above the current market price. The company has a market cap of approximately $10 billion. We estimate Nvidia will report revenues of around $4.3 billion and net income in excess of $600 million this year. We forecast a non-GAAP diluted EPS of $1.42 as compared to the market consensus of $1.00.

Texas Instruments

Texas Instruments (NASDAQ:TXN) announced the lowest power microcontroller with an on-chip LCD controller, a new low-cost LaunchPad rapid prototyping kit that provide all the advantages of non-volatile FRAM in a small memory footprint, and some new high-voltage successive approximation register (SAR) analog-to-digital converters (ADC). Our valuation of $42 (~ $45 billion market cap) for TI is at a more than 10% discount to the current market price. We expect the company to report $13.1 billion and $2.6 billion in revenue this year. Our GAAP diluted EPS forecast for TI stands at $2.43 while the market consensus is at $2.41. We will update our valuation for TI after the Q3 2014 earnings release on October 20.

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