Semiconductor Industry Preps For Accelerating Growth In 2021

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The semiconductor industry is poised for faster growth in 2021 now that it has recovered from a cyclical downturn.




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World Semiconductor Trade Statistics predicts that chip sales will accelerate to 8.4% growth next year, reaching $469 billion in revenue. For 2020, it estimated that chip sales would rise 5.1% to $433 billion. That’s after semiconductor industry sales fell 12% to $412 billion in 2019.

Semiconductor industry sales returned to growth this year despite disruptions from the Covid-19 pandemic.

Elsewhere, investment bank UBS forecasts that semiconductor industry revenue will rise 12% in 2021 to about $492 billion. UBS estimates that semiconductor revenue grew about 7% to $439 billion in 2020, bucking a challenging economic climate from the coronavirus pandemic.

5G, AI Seen Driving Semiconductor Industry

“There is still ample room for growth,” UBS analysts said in a Dec. 20 report. Technology inflections such as 5G wireless, artificial intelligence and machine learning are driving chip sales, they said.

Among semiconductor stocks, UBS dubbed memory-chip maker Micron Technology (MU) a “top pick for 2021.” UBS says its other buy-rated chip stocks include Broadcom (AVGO), Intel (INTC), Marvell Technology (MRVL) and Nvidia (NVDA).

Of those stocks, Intel has been a notable laggard. UBS expects Intel to announce a long-term volume commitment for outsourcing some chip manufacturing that “should start to shift the narrative” for the company in 2021.

Bradley Gastwirth, chief technology strategist for Wedbush Securities, concurs on Intel. He expects Intel to shift some chipmaking capacity to leading foundry Taiwan Semiconductor Manufacturing (TSM) in the year ahead, according to a Dec. 20 report.

Post-Covid Economic Recovery Will Be Tailwind

Evercore ISI analyst C.J. Muse said the uptrend in the semiconductor cycle is just getting started. He forecasts semiconductor industry sales rising 14% in 2021 to $500 billion.

Semiconductors are playing a key role in the digital transformations of enterprises, Muse said in a Dec. 17 report.

KeyBanc Capital Markets analysts said recent chip supply tightness is a sign of stronger demand and will support a more sustained recovery into 2021. In a Dec. 16 report, KeyBanc said its key ideas in the sector include Analog Devices (ADI), Microchip Technology (MCHP), NXP Semiconductors (NXPI) and ON Semiconductor (ON).

Deutsche Bank analysts cautioned that the semiconductor industry recovery is already reflected in the valuation of most chip stocks.

A post-Covid normalization of macroeconomic trends should be a tailwind for semiconductor stocks exposed to the more cyclical sectors of automotive and industrial, Deutsche Bank analysts said in a Dec. 16 report.

Meanwhile, the 5G wireless transition will continue to lift chipmakers involved in cellular infrastructure and smartphones, they said.

Semiconductor Industry Mergers To Continue

Consolidation in the semiconductor industry is likely to be a major theme in 2021, Deutsche Bank said. However, after a flurry of mergers and acquisitions announced in the second half of 2020, the list of potential targets has become shorter, the firm said.

In July, Analog Devices announced an agreement to buy Maxim Integrated Products (MXIM) in an all-stock deal worth about $21 billion.

In September, Nvidia announced a plan to buy chip designer Arm for up to $40 billion in cash and stock.

And in October, Advanced Micro Devices (AMD) announced an all-stock deal worth $35 billion to buy Xilinx (XLNX).

Also in October, Marvell announced a plan to buy Inphi (IPHI) in a cash and stock deal with about $10 billion.

Semiconductor Industry Acquisition Targets Identified

CFRA Research analyst Angelo Zino speculates that the most likely takeover targets now include Cree (CREE), Lattice Semiconductor (LSCC), NXP, ON, Semtech (SMTC), and Silicon Labs (SLAB).

Consolidation in the semiconductor industry should accelerate after a pause in recent years, Zino said in a recent report.

KeyBanc said Marvell, Microchip and Synaptics (SYNA) are most likely to be acquired. Other potential take-out candidates include Ambarella (AMBA), ON, Silicon Labs and Silicon Motion (SIMO), the bank said.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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