The month of December is notorious for being a time period in which companies rush to fill orders before the end of the year. On January 20th, FBR Capital analyst Christopher Rolland said in a note issued to investors that FBR’s SemiVision lead times (the time between the initiation and execution of a process) had increased by one day on a month-over-month basis in December 2014. According to the analyst, lead times for semiconductor companies have been flat every month since August, thus, he views “December’s lead time expansion as healthy and driven by accelerating order rates in December.” Rolland dug a little deeper and provided details on the effect of increased lead times on specific semiconductor stocks that he covers. Highlights include:
On Semiconductor (NASDAQ: ONNN):
Rolland currently has an Outperform rating on ON Semiconductor with a price target of $11.50, despite citing a decrease in the company’s lead time in December 2014. The analyst stated, “Lead times dropped considerably (a week quarter over quarter; we note this follows a week and a half decrease in 3Q) as new backend capacity continues to work through demand. Most notably, lead times for low-power MOSFETs, Schottky Diodes, and rectifiers contracted the most. Pricing trends were down modestly in the quarter.”
However, ON Semiconductor has not really seen a negative impact from this as the company recently hit its 52-week of high $10.60 on January 9th.
Rolland has rated ON Semiconductor 6 times since October 2013, earning an 83% success rate recommending the company and a +15.7% average return per recommendation.
Atmel (NASDAQ: ATML):
Similar to his rating on ONNN, Rolland presently has an Outperform rating on Atmel with a price target of $9.50, despite believing the company’s December lead times were negative. Rolland noted, “Lead times for the company’s products were down significantly quarter over quarter (down approximately two weeks quarter over quarter).” With that said, “All of the decrease came in December, as lead times were flat in both October and November.” The analyst concluded “Lead times have expanded considerably since 2013 and were up two weeks in 3Q. Atmel remains the only source for EPROM (STM still offering last-time buys) and one of the top three sources for EEPROM (along with STM and MCHP).”
The decrease in Atmel’s lead times will likely be reflected in its fourth quarter fiscal 2014 earnings report, scheduled for Wednesday, February 4th.
Rolland has rated ATML 6 times since April 2013, earning an 80% success rate recommending the stock and a +15.9% average return per recommendation.
NXP Semiconductors (NASDAQ: NXPI):
Rolland believes December’s lead times for NXP were rather positive and are continuing to expand, “particularly for the company’s Standard Products.” In addition, “Distys continue to describe strong demand for NXP MCU products. Notably, pricing and lead times increased for Schottky Diodes. After iPhone wins, ID product lead times remain extended but stable (pricing also stable).” Rolland currently has an Outperform rating on NXP Semi with a $90 price target.
The increase in NXP’s lead times in the month of December should also be reflected in the company’s fourth quarter and full-year earnings report scheduled for Wednesday, February 4th.
Rolland has rated NXP 4 times since July 2014 with a 75% success rate recommending the company and a +10.9% average return per recommendation.
Broadcom Corp. (NASDAQ: BRCM):
Despite being “less distribution heavy,” Broadcom saw an increase in lead times in addition to an increase in communication modules in December. Rolland, who has an Outperform rating on the stock with a $50 price target, cited, “Lead times were up a day overall at approximately 16 weeks, with expansion led by Ethernet switches expanded and communications equipment. We note extremely stable pricing, particularly for important parts, including combo connectivity chips and networking parts like Trident 2.”
Because Broadcom does “not sell a large percentage of their products through the distributor channel,” the company’s increase in lead times will likely be “less statistically significant” in its upcoming fourth quarter earnings report scheduled for Thursday, January 29th.
Rolland has rated Broadcom 14 times since July 2013, earning an 86% success rate recommending the stock and a +25.2% average return per recommendation.
Intel (NASDAQ: INTC):
Intel is also “less distribution heavy”, although its lead times remained “mixed.” According to Rolland, “Overall, lead times extended several days quarter over quarter, while ASPs stayed roughly flat (pricing rebounded in November). Total distributor inventory dollars were flat quarter over quarter.” The analyst currently has an Outperform rating on Intel with a price target of $42.
Intel recently released its fourth quarter and full year earnings report on January 15th with record breaking revenue, but a less than impressive Q2 forecast. The company’s “mixed” lead times in December did not really have an effect on its Q4 earnings.
Rolland has rated Intel 11 times since June 2013 with an 82% success rate recommending the company and a +22.4% average return per recommendation.
All in all, Rolland believes “the mini-cycle” of increased lead times in December 2014 has served “to refresh, elongate, and fuel this semiconductor upcycle.”
Overall, Christopher Rolland has a 62% success rate recommending stocks and a +8.9% average return per recommendation.