Semiconductors In 2017: BlueFin Previews The Year Ahead

Semiconductors reported Q4 revenues marginally better than expected, driven by PC and China smartphone upside. The outlook for Q1 is “largely seasonal, with pockets of weakness in the smartphone market,” BlueFin’s Paul Peterson said in a report.

BlueFin forecast 6.7 percent growth in 2017 to $360 billion, higher than the estimate published by World Semiconductor Trade Statistic. Analyst Peterson believes that the industry’s strong baseline (with Q4 2016 global revenues expected to top $91.6 billion) would be the primary driver of revenue growth this year.

Forecasts For 2017

“Last year was a tale of two halves,” Peterson commented. The first half of 2016 recorded a year-over-year decline of nearly 6 percent, with the completion of the inventory correction that began in the second half of 2015. The second half of last year recorded almost 6 percent year-over-year growth, backed by inventory replenishment and rising demand.

“In fact, worldwide semiconductor revenues grew 7.4 percent YoY in November, thanks to 16 percent YoY growth in China. It is off this strong second half momentum that we enter 2017, making industry observers more optimistic about the industry’s growth prospects in several years,” the analyst wrote.

Following a five-year compounded annual growth rate of as low as 2.5 percent and a couple of straight years of flattish revenues, the semiconductor industry seemed poised for strong growth in 2017, Peterson said.

“Asia contacts expect strong growth, but are mindful that any tightening of China monetary and fiscal policy could significantly dampen the demand environment. Meanwhile, industry contacts in the U.S. do not believe the Trump administration’s policies will have much impact on industry demand until 2018,” the BlueFin report noted.

The analyst expects 2017 growth to be driven by cloud servers, artificial intelligence and deep learning, 100G optical, automotive and Internet of Things.

How To Play The Semiconductor Industry

Peterson has a positive stance on:

• Advanced Micro Devices, Inc. AMD is well positioned for significant market share gains in desktop, notebook, servers and graphics in 2017.
• Analog Devices, Inc. ADI is “the premier high-performance analog franchise with leadership data converter, op amp, and RF portfolios.”
• Broadcom Ltd AVGO represents a “core holding” in semiconductors.
• Intel Corporation INTC could benefit from a stable PC environment and strength in cloud server, memory and IoT.
• Microsemi Corporation MSCC has favorable market segment exposure.
• Monolithic Power Systems, Inc. MPWR represents a good long-term investment, since it’s the “fastest growing company in the analog space.”
• Taiwan Semiconductor Mfg. Co. Ltd. (ADR) TSM is poised to benefit from a healthy semiconductor demand environment in 2017.
• Texas Instruments Incorporated TXN is well positioned to benefit from its decision to scrap the distribution demand creation program in 2017.