Thesis Semiconductor Market

Thesis Semiconductor Market-65
Industry heavyweight Samsung Electronics demonstrated these improving competitive dynamics when it responded to the recent slide in memory prices by scaling back its planned capital expenditures for 2019.

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This arms race extends beyond the leading online platforms to the offline world, where the emergence of the Internet of things creates new opportunities in industrial and consumer end markets.

For example, in the utilities sector, machine learning promises to improve efficiency by balancing electricity supply and demand in a more dynamic fashion and identifying potential maintenance issues before they lead to system outages. The opportunity set reflects the migration of in-dash infotainment consoles and advanced driver-assistance systems from luxury vehicles to mid-market cars, as well as the electrification of additional automobile subsystems and the push for autonomous driving.

We prefer high-quality semiconductor companies whose valuations have priced in the worst-case scenario in the short term and fail to reflect the structural and secular trends that should moderate this downcycle and support long-term earnings growth.

Within the commoditized memory market, we’ve focused on companies with low production costs, healthy balance sheets, and a commitment to returning capital to shareholders.

Important Information This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of December 2018 and are subject to change without notice; these views may differ from those of other T. Fact Set—Copyright © 2018 Fact Set Research Systems Inc. This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services.

Lower share counts also improve earnings leverage when these supply- and demand-side tailwinds become more prominent and start to drive the narrative again.

Selectivity in semiconductor stocks remains key, especially if economic uncertainty leads to further deterioration in the near-term demand outlook.

Meanwhile, the high penetration rate in the smartphone market and an extended handset-replacement cycle raised concerns that this key growth driver had started to fade.

A wave of downward earnings guidance revisions across the industry ostensibly confirmed the market’s worst fears, prompting many investors to head for the exits.


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