The surging demand for semiconductor chips from the consumer electronics and electric vehicle (EV) industries created a global chip shortage when semiconductor foundries were forced to close for some time last year due to pandemic-led restrictions. Governments and private businesses worldwide have of late been investing heavily to boost global chip production to support digital transformation and reach carbon neutrality.
Pat Gelsinger, Chief Executive Officer of Intel Corporation (INTC), estimated that chips would account for one-fifth of the cost of an automobile in 2030 as cars start to run on electricity increasingly, representing vast scope for the industry.
The global sales of semiconductors are expected to increase 8.8% in 2022. Considering this industry's improving growth prospects, under-the-radar semiconductor stocks Onto Innovation Inc. (ONTO) and Tower Semiconductor Ltd. (TSEM) could be good additions to one’s watchlist.
Click here to checkout our Semiconductor Industry Report for 2021
Onto Innovation Inc. (ONTO)
ONTO is a semiconductor company formed through the merger of Nanometrics Incorporated (NANO) and Rudolph Technologies Inc. (RTEC) in 2019. The Flanders, N.J. company provides a portfolio of leading-edge technologies such as 3D metrology, macro defect inspection, and lithography for semiconductor packaging.
On August 31, ONTO reported that its Dragonfly inspection system unit volumes grew 50% year-over-year in the first half of 2021 and is expected to keep growing rapidly in the remainder of the year. Regarding this development, Dr. Ju Jin, Senior Vice-President and General Manager of ONTO’s inspection business, said, "Given the speed at which the Dragonfly system has been adopted, and this year’s considerable delivery numbers, the system has proven to be the game-changing inspection and metrology solution the industry needed."
In its second fiscal quarter, ended June 26, ONTO’s revenue increased 43.3% year-over-year to $193.39 million. Its non-GAAP operating income improved 105.1% from the prior-year quarter to $49.65 million. The company’s non-GAAP net income rose 120.4% from the same period last year to $45.88 million, while non-GAAP EPS came in at $0.92, up 119% year-over-year.
A $195.34 million consensus revenue estimate for the current quarter (ending September 2021) indicates a 54.4% increase from the prior-year quarter. Likewise, the $0.92 consensus EPS estimate for the current quarter reflects a 130% year-over-year increase. In addition, ONTO has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 174.3% in price over the past year to close yesterday’s trading session at $79.54.
ONTO’s POWR Ratings reflect this promising outlook. The stock has a Growth, Momentum, and Quality grade of B. In the A-rated, 98-stock Semiconductor & Wireless Chip industry, it is ranked #46. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
To see the additional POWR Ratings for Value, Stability, and Sentiment for ONTO, click here.
Tower Semiconductor Ltd. (TSEM)
TSEM provides high-value analog semiconductor solutions that include process technologies and wafer fabrication services serving consumer electronics, industrial, and automotive markets. The company is headquartered in Israel.
On September 13, TSEM launched its new LiDAR technology for Advanced Driver-Assistance System (ADAS). Vehicles with this system are better equipped and adept at responding to reality. Given the rising demand for autonomous vehicles, this software launch should improve TSEM’s financials in the near term.
Earlier this month, TSEM partnered with photonics company Quintessent Inc. to create a new Silicon Photonics (SiPho) process. The integration of lasers and amplifiers with SiPho could improve power efficiency, thereby improving TSEM’s product quality.
For its second fiscal quarter, ended June 30, TSEM’s revenue came in at $362.14 million, up 16.8% from the prior-year quarter. The company’s operating profit increased 53.7% year-over-year to $34 million. Its adjusted net profit improved 59.9% from the same period last year to $37.33 million, and its adjusted EPS rose 54.5% year-over-year to $0.34.
Analysts expect EPS to increase 105.6% year-over-year to $0.37 in the current quarter (ending September 2021). The Street’s $384.97 million revenue estimate for the current quarter indicates a 24.1% year-over-year rise.
TSEM’s stock has gained 70.1% over the past year and 20.8% year-to-date.
It’s no surprise that TSEM has an overall B rating, which translates to Buy in our POWR Ratings system.
TSEM has a Value, Momentum, Stability, and Sentiment grade of B. It is ranked #14 of 98 stocks in the Semiconductor & Wireless Chip industry.
Click here to see the additional POWR ratings for TSEM (Growth and Quality).
Click here to checkout our Semiconductor Industry Report for 2021
ONTO shares were trading at $79.03 per share on Wednesday afternoon, down $0.51 (-0.64%). Year-to-date, ONTO has gained 66.20%, versus a 20.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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