The Zacks Semiconductors - Radio Frequency industry is suffering from a rise in commodity prices, raging inflation, growing interest rates and global macroeconomic uncertainties. However, continued higher spending on the deployment of 5G networking, gaining from the rapid proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS) and Augmented Reality/Virtual Reality devices, is a catalyst. The growing need for fast connections, low latency and efficient battery life in wirelessly connected devices has been driving the demand for WiFI-enabled hotspots. The democratization of 5G smartphones has been a tailwind for the industry players. These factors have bolstered the demand for radio-frequency semiconductor solutions provided by industry players like Skyworks Solutions SWKS and Qorvo QRVO.
The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide radio frequency solutions, front-end modules, low-noise amplifiers, diodes, multi-chip modules, optical components, surface acoustic wave, bulk acoustic wave technology-based antenna-plexers, and film bulk acoustic resonator filters to enable smartphone devices to function more efficiently in congested RF spectrum. They serve a wide array of industries with their solutions, finding ample applications in 5G and smartphone equipment, aerospace and defense, optical networks, cellular base stations, automotive, and smart home applications. Most of these companies utilize robust wafer fabrication technologies, as well as ZigBee, Bluetooth Low Energy, Thread, silicon germanium and Gallium Nitride technologies, to stay ahead of the competition.
4 Trends Influencing the Prospects of the Semiconductors - RF Industry
Accelerated 5G Deployment is a Tailwind: The rapid implementation of 5G networking infrastructure and the robust adoption of cloud computing applications hold promise for the wireless communication market. The coronavirus crisis-induced work-from-home wave has necessitated the need for higher bandwidth and triggered LTE advancements, which are expected to bolster the demand for RF power amplifiers. Increasing RF content in the latest 5G smartphones is a key catalyst. Further, growing demand for WiFi hotspots, as the number of wirelessly connected devices increases in households, is enhancing industry prospects. Cisco forecasts that number of hotspots worldwide will reach 600 million in 2023.
Innovation is Opening up Business Avenues: The rapid proliferation of IoT, wearables, drones, VR/AR devices, autonomous cars, and ADAS is expected to drive the demand for RF semiconductor products beyond smartphone devices, favoring industry prospects. Notably, RF Semiconductors are setting the pace for technology modernization by consequently digitizing aspects like connectivity, healthcare, transport and defense. The diversified utilization of RF Semiconductor products bodes well for the industry players. Moreover, the evolution of semiconductor manufacturing processes from 10 nanometers (nm) to 7 nm, and even 5 nm and 3 nm technology, is anticipated to bolster the industry prospects. Further, the rollout of bands and band combinations has led to considerable design challenges for OEM smartphone manufacturers. The industry participants are looking to address these challenges with a robust range of antenna-plexer portfolios utilizing the BAW technology.
Growing Adoption of Electric Vehicles Aids Prospect: Industry players are gaining from the increasing inclusion of their products in electric vehicles (EVs). The market for EVs is expected to expand fourfold by 2027.
Supply-Chain and Higher Commodity Costs to Hinder Prospects: The industry players are reeling under the impacts of supply-chain constraints, as well as the ongoing Russia-Ukraine war. Volatility in prices of certain commodities like copper does not bode well for industry participants.
Zacks Industry Rank Indicates Bright 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 #122, which places it at the top 49% 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 bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2023 have moved up 2.02% since Apr 30, 2023.
Before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 & Sector
The Zacks Semiconductors - Radio Frequency Industry has underperformed the S&P 500 and its sector over the past year. The industry has declined 1.7% over this period against the S&P 500’s gain of 8.6% and the broader sector’s increase of 22%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing the Semiconductors - Radio Frequency stocks, the industry is currently trading at 12.43X, lower than the S&P 500’s 18.39X and the sector’s 23.16X.
Over the past five years, the industry has traded as high as 23.62X and as low as 8.17X, with the median being 13.92X, as the charts below show.
Forward 12-Month P/E Ratio
2 Radio Frequency Stocks to Keep a Close Eye on
Skyworks: This Zacks Rank #3 (Hold) company is benefiting from accelerated 5G deployment, and increasing demand for WiFi 6E and 7 gateway solutions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Skyworks’ solutions are being used by the likes of Cisco, Orange, Verizon and Google. Skyworks’ Sky5 product portfolio facilitates several 5G smartphone launches, and its offerings have been selected by Samsung and Google.
Shares of Skyworks have gained 6.3% year to date.
The Zacks Consensus Estimate for SWKS’ fiscal 2023 earnings has declined 1% to $9.17 per share over the past 30 days.
Price and Consensus: SWKS
Qorvo: Another Zacks Rank #3 company, Qorvo, is benefiting from its diverse portfolio, which is creating growth opportunities in mobile devices, network infrastructure and aerospace/defense.
Shares of Qorvo have declined 0.1% year to date.
The Zacks Consensus Estimate for QRVO’s fiscal 2023 earnings has declined 2.3% to $4.65 per share over the past 30 days.
Price and Consensus: QRVO
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