The global semiconductor shortage is a grave challenge faced by countries worldwide, as the low supply is creating negative spill-over effects in the majority of tech-savvy industries. As a result, governments and corporations alike are spending heavily on this industry to expand the total production capacity.
President Biden’s proposed infrastructure plan includes a provision of $50 billion investment to revive the American semiconductor industry. Comparatively, the European Union announced its aim to boost its chip production to account for 20% of the global output by 2030, while South Korea recently announced a $452 billion investment in this industry over the next nine years. On the corporate front, Taiwan Semiconductor Manufacturing Company (TSM), the world’s largest semiconductor manufacturer, has responded to this shortage by increasing its capital spending budget to $28 billion in 2021.
Such investments should boost the production, and thereby supply of semiconductors globally. According to Statista, the global semiconductor industry is expected to grow 11% year-over-year in 2021. Moreover, the Semiconductor Industry Association projects the annual global sales to increase 19.7% in 2021 and 8.8% in 2022.
Given the growth potential of the industry, low-priced and fundamentally sound semiconductor stocks United Microelectronics Corporation (UMC) and Himax Technologies, Inc. (HIMX) are poised to witness immense upside in the near term.
United Microelectronics Corporation (UMC)
Based in Taiwan, UMC is a leading global semiconductor foundry company providing circuit design, mask tooling, wafer fabrication, and assembly and testing services. The Company operates through two segments- Wafer Fabrication and New Business segment.
On April 28, UMC partnered with its global customers to expand its production capacity at P6 semiconductor foundry. The expansion policy should increase its production capacity to meet the current market demand.
UMC’s revenues increased 11.4% year-over-year to NT$47.10 billion ($1.65 billion) in the fiscal first quarter which ended on March 31. Its operating income grew 123.2% from the year-ago value to NT$7.62 billion ($267 million). Net income stood at NT$9.89 billion ($347 million), up 703.8% from the same period last year. The company’s earnings per ADS increased 347.4% year-over-year to NT$4.25($0.15).
Analysts expect UMC’s revenues to increase 15.8% year-over-year to $7.19 billion in the current year. The consensus EPS estimate of $0.57 for the ongoing year indicates a 35.7% rise compared to the last year. The EPS is also expected to increase 44.4% year-over-year to $0.13 in the current quarter ending June 2021. The company has an impressive earnings surprise history as well, as it has beaten the consensus EPS estimates in three of the trailing four quarters.
UMC has gained 273.6% over the past year and 18% over the past month to close yesterday’s trading session at $9.64.
It is no surprise that UMC has an overall grade of A, which equates to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
UMC has a grade of B for Value, Momentum, Stability, Sentiment, and Quality. Among the 98 stocks in the B-rated Semiconductor & Wireless Chip industry, UMC is ranked #1.
Click here to view additional grades for UMC.
Click here to check out our Semiconductor Industry Report for 2021
Himax Technologies, Inc. (HIMX)
Headquartered in Taiwan, HIMX is a fabless semiconductor company providing display driver integrated circuits (IC) and timing controllers used in televisions, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and other consumer electronics devices. The company operates through two segments- Driver IC and Non-Driver Products.
On May 19, HIMX introduced its latest liquid crystal on silicon (LCoS) technology, phase modulation LCoS, for two key application platforms. With such new innovations, the company should be able to meet the challenging requirements in the automotive and communication industries and expand its customer base.
On March 31, HIMX announced its partnership with BOE Limited Varitronix to secure a flexible AMOLED automotive display solution design-win with a leading new energy vehicle (NEV) maker. The company’s products are expected to be highly demanded in the growing market for smart vehicles.
HIMX’s revenues increased 67.4% year-over-year to $309 million in the fiscal first quarter, which ended on March 31. Its operating income grew 1,724.8% from the year-ago value to $84.80 million, while its profit for the period improved 2,259.3% year-over-year to $66.30 million. The company’s earnings per ADS increased 1915.8% year-over-year to $0.38.
The consensus revenue estimate of $324.7 million for the current quarter ending June 2021 indicates an 81.4% improvement from the same period last year. Analysts expect the company’s EPS to come in at $0.46 in the current quarter, indicating a 4,500% rise year-over-year. Moreover, HIMX surpassed Street EPS estimates in each of the trailing four quarters, which is impressive.
HIMX has gained 114.1% over the past six months to close yesterday’s trading session at $14.32. The stock has gained 93.8% so far year-to-date.
HIMX has an overall grade of B, which equates to a Buy rating in our proprietary ratings system. HIMX has a grade of A for Growth and Value. It is ranked #29 in the same industry.
To see HIMX’s grades for Sentiment, Quality, Momentum and Stability, click here.
UMC shares were trading at $9.23 per share on Friday afternoon, down $0.41 (-4.25%). Year-to-date, UMC has gained 9.49%, versus a 11.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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