Intel, AMD And Marvel Screen The Best In This Analyst's Macro Stress Test For COVID-19 Impact

COVID-19 caused by the new coronavirus is having far-reaching consequences for individuals, corporations and the global economy at large. An analyst at UBS sifted through the semiconductor space to see how each of these companies will cope up under three potential macroeconomic scenarios.

The Scenarios

Analyst Timothy Arcuri considered for his analysis three potential macroeconomic scenarios set forth by UBS' Global Economic/Strategy team.

Baseline: Situation coming under control in four to six weeks; China supply chain limping back to normalcy by the end of March; disruptions persisting in Korea, Japan and Italy

Intermediate Downside: Infections multiply 1,000 times but things brought under control by the end of June.

Severe Downside: About 16% of the global population affected with a much higher mortality rate and disruptions running into the third quarter.

The Thesis

Consumer-focused segments such as smartphones are likely to be impacted more, while enterprise, infrastructure, or hyperscale fundamentally are more resilient, Arcuri said in a Friday note.

The analyst noted that semiconductor multiples have compressed back to five-year average levels, although remaining about 8% above 10-year averages. Intel Corporation INTC, Advanced Micro Devices, Inc. AMD and Marvell Technology Group Ltd. MRVL are now essentially discounting UBS' severe downside scenario, Arcuri said.

Due to the largest segments of Intel and AMD's businesses being consumer-focused, the markets have punished these stocks, he added. The analyst, however, believes the companies' leverage to Data Center makes them somewhat resilient to any supply-related disruption and a potential fallout.

The analyst sees Marvel also as being somewhat insulated due to its exposure to Infrastructure and Storage markets.

Arcuri said he believes KLA Corp KLAC and Texas Instruments Incorporated TXN have only 10% downside if the severe-case plays out. Texas Instruments despite its consumer exposure through autos, is insulated to some extent due the degree of correction the stock underwent.

However, Qorvo Inc QRVO and Skyworks Solutions Inc SWKS have about 20% additional downside to UBS' severe-case due to their high smartphone exposure, the analyst added.

Among semiconductor production equipment stocks, Applied Materials, Inc. AMAT has the most downside in the severe-case scenario, while KLA has the least.

Memory chipmaker Micron Technology, Inc. MU, according to Arcuri, has mid-teens downside. However, due to UBS' bullishness, the analyst believes risk-reward is highly attractive for Micron investors.

Ratings/Price Targets

• Intel: Buy/$75
• AMD: Neutral/$52
• KLA: Sell/$145
• Texas Instruments: Sell/$117
• Qorvo: Neutral/$110
• Skyworks: Neutral/$105
• Applied Materials: Sell/$51
• Micron: Buy/$75

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