As the global economy gathers steam this year, fueled by mass COVID-19 vaccinations and a substantial increase in demand, a concern has been growing among industries that depend on semiconductors. That’s because the semiconductor industry faces a supply crunch, and with rising demand for devices and electric vehicles, a chip shortage could thoroughly hamstring the operations of swaths of end-product manufacturers.
Against this backdrop, leading semiconductor companies STMicroelectronics N.V. (STM – Get Rating) and O2Micro International Limited (OIIM – Get Rating) have been ramping up production to meet the ballooning demand. These companies have delivered promising top-line growth and are well positioned to outperform the market in the days to come.
Conversely, Cree, Inc. (CREE – Get Rating) and SemiLEDs Corporation (LEDS – Get Rating) have reported negative earnings in their last reported quarter as they continue to confront challenges associated with the broader macroenvironment. We think their weak fundamentals and unimpressive financials could prevent them from capitalizing on the surge in demand.
Stocks to buy:
Headquartered in Geneva, Switzerland, STM is a designer, manufacturer and marketer of semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the following segments: Automotive and Discrete Group, Analog, MEMS and Sensors Group, and Microcontrollers and Digital ICs Group.
STM recently developed the world’s smallest MEMS mirror with Intel to enable continuous laser scanning across the entire field of view. This second-generation micro-mirror should break ground in 3D scanning and detection applications and help the company meet the technical needs of its customers.
This month, the company is extending its long-term plan to boost automotive innovation to support customers of STM’s SPC56 automotive microcontrollers. This development would enable customers to extend the lifetime of their products because they could continue to depend on the performance of automotive microcontrollers.
In the fourth quarter, ended December 31, 2020, STM’s revenue has increased 21.3% sequentially to $3.24 billion. Its gross margin grew 280 basis points sequentially to 38.8%, while its gross profit increased 16% year-over-year to $1.25 billion. The company’s operating margin increased 800 basis points sequentially to 20.3%.
A consensus EPS estimate of $1.67 for 2021 represents a 39.2% improvement year-over-year. The consensus revenue estimate of $12.11 billion for the current year represents an 18.5% increase year-over-year. The stock has gained 52.7% over the past year.
STM’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
STM has a B grade for Sentiment, Momentum and Quality. Of the 99-stock B-rated Semiconductor & Wireless Chip industry, it is ranked #8.
To see additional POWR Ratings for Growth, Value, and Stability for STM, Click here.
Founded in 1995, OIIM designs and markets integrated circuits and solutions for power management components and systems in China, the United States and internationally. The company’s products are used in the consumer electronics, computer, industrial, communication, and automotive markets.
Last month, the company was issued a…
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