The fifth generation (5G) technology standard for broadband cellular networks emerged as a hot investment theme last year. The long-awaited switch to the 5G standard is now well underway and is fueling the current tech evolution. 5G networks promise faster connectivity, greater reliability, connection density, and reduced latency than the current 4G LTE.
Building out the new network standard will require many mini 5G-base stations, which will boost the demand for semiconductor chips and networking equipment used in 5G-base stations. In fact, the 5G infrastructure market is expected to see a CAGR of 29% over the next six years with increasing demand from healthcare, automotive, the internet of things (IoT), and other segments.
So, it could make sense to add Marvell Technology Group Ltd. (MRVL) and Skyworks Solutions, Inc. (SWKS) to one’s portfolio to benefit from their healthy fundamentals and high growth rates. Conversely, it may be wise to avoid weaker players such as Intel Corporation (INTC) and American Tower Corporation (AMT) for now, because they are facing some headwinds and their futures look murkier.
Stocks to Buy:
Marvell Technology Group Ltd. (MRVL)
MRVL designs, develops, and sells analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. It offers a portfolio of ethernet solutions, including controllers, network adapters, physical transceivers, and switches, single or multiple core processors, custom application specific integrated circuits; and printer SoC products and application processors.
MRVL introduced its new Prestera DX 7300 series of ethernet switches last month. They are designed to intelligently enable secure and efficient data movement for 5G and IoT traffic. It also introduced its 5G O-RAN portfolio with the launch of its open radio access network (RAN) and virtualized radio access network (vRAN) platform solutions to enhance leading-edge DPU and connectivity technology. And in October, MRVL announced the execution of a definitive agreement to acquire Inphi Corporation, which is expected to close by the second half of this year.
In the third quarter ended October 31, 2020, MRVL’s overall revenue increased 13% year-over-year to $750 million, driven by its networking business. The segment contributed 59% to the company’s top-line and grew 35% year-over-year. However, MRVL reported a loss of $0.03 per share, though that represented a significant improvement from the quarter-ago loss of $0.24 per share.
Last month, MRVL and Analog Devices (ADI) announced an advanced 4G/5G radio unit (RU) design that supports high antenna counts and multi-gigabit per second throughput for both integrated RAN and Open RAN deployments. Strong 5G and Cloud product ramps are fueling the ongoing success in these strategic growth markets. Furthermore, analysts expect MRVL’s revenue and EPS to rise 9.6% and 39.4%, respectively, this year.
MRVL has gained 78.5% in the past year. The stock closed yesterday’s trading session at $47.61, rising 9.8% in the past month. Moreover, MRVL is currently trading at just 2% below its 52-week high of $56.12.
How does MRVL stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
It is ranked #11 in the 96-stock Semiconductor & Wireless Chip industry.
Skyworks Solutions, Inc. (SWKS)
SWKS is a wireless networking company that designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. The company sells its products for use in the aerospace, automotive, cellular infrastructure, industrial, medical, military, smartphone, and wearable markets.
SWKS introduced new embedded modules powering Fibocom’s enterprise IoT applications in the previous quarter. It also launched high-speed, connected-car solutions for Daimler and leading Korean and Japanese automotive OEMs. SWKS company captured design wins for residential gateways at Verizon and Telecom Italia and has also secured design wins in 5G wireless infrastructure deployments, powering MIMO base stations and small cell installations.
In the third quarter, SWKS’ revenue increased 16% year-over-year to $957 million, with nearly 69% of sales derived from the smartphone industry. In fact, in recent quarters, nearly half of the company’s nearly revenue has been derived from Apple (AAPL) on the back of its connectivity chip portfolio. SWKS delivered 802.11ax Wi-Fi solutions for access points for Amazon (AMZN) Eero and ramped Wi-Fi 6 solutions for advanced routers at NetGear and Asus during the quarter. SWKS also supported Facebook’s (FB) new Oculus AR/VR devices. Its non-GAAP EPS came in at $1.85 compared to the year-ago value of $1.52.
SWKS’ Sky5 platform for 5G applications, bulk acoustic wave (BAW) filter, and TC-SAW capabilities are positive drivers of its business. According to SWKS’ management, “With 5G technology launches now well under way, we are ramping our innovative Sky5 solutions in a rapidly expanding set of end markets, from mobile to IoT, automotive and wireless infrastructure.” In line with its progress, analysts expect the company’s current-year revenue and EPS to rise 17.3% and 23.5%, respectively.
SWKS closed yesterday’s trading session at $156.30, up 4.1% in the past month. Moreover, the stock has gained 31.7% in the past year and is currently trading just 1.5% below its 52-week high of $158.61.
It is no surprise that SWKS is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. It is ranked #12 of 96 Semiconductor & Wireless Chip stocks.
Stocks to Avoid:
Intel Corporation (INTC)
INTC designs integrated digital technology platforms for smart and connected devices worldwide. By embedding intelligence in the cloud, network, and edge, INTC unleashes the potential of data to transform business. It operates through PC Client Group, Data Center Group, Internet of Things Group, Mobile and Communications Group, Software and Services, and all other segments.
INTC unveiled Horse Ridge II, its second-generation cryogenic control chip, at an Intel Labs virtual event last month. The release marked another milestone in the company’s progress toward achieving scalability, one of quantum computing’s biggest hurdles. INTC also announced the acquisition of SigOpt, a leading platform for the optimization of artificial intelligence (AI) software models at scale, in October. The company plans to use SigOpt’s software technologies across its AI hardware products to help accelerate, amplify, and scale AI software solution offerings.
INTC’s manufacturing hiccup and struggle to launch its 7-nanometer chips online is apparent in its last reported third-quarter results. The company’s revenue decreased 4% year-over-year to $18.3 billion, which marked its highest revenue decline in over five years. INTC’s data center revenue slid 7% to $5.9 billion, and its adjusted EPS fell 22% compared to the year-ago quarter to $1.11.
INTC is losing its share in the semiconductor market to competitors such as Taiwan Semiconductor Manufacturing (TSM), Advanced Micro Devices (AMD), NVIDIA (NVDA), and Qualcomm (QCOM). According to Mercury Research, INTC’s CPU market share has declined to 79.8% in the third quarter of 2020 from 84.2% in the prior-year period. Moreover, the company’s production problems run so deep that INTC is using third-party manufacturing services for the first time in many years. Wall Street analysts further expect revenue and EPS to declines of 7.1% and 6.8%, respectively, this year.
ITNC has retreated 15.8% over the past year. The stock closed yesterday’s trading session at $50.61. INTC is down 2.6% in the past month and is currently trading 27% below its 52-week high of $69.29.
INTC’s poor prospects are also apparent in its POWR Ratings. It has a “D” for Trade Grade and Peer Grade, and a “C” for Buy & Hold Grade. It is ranked #70 of 96 stocks in the Semiconductor & Wireless Chip industry.
American Tower Corporation (AMT)
AMT is a real estate investment trust (REIT) that invests in the real estate markets around the globe. It is an independent owner, operator and developer of multi-tenant wireless and broadcast communications infrastructures, with a portfolio of approximately 181,000 communications sites, including more than 41,000 properties in the U.S. and 140,000 properties internationally.
AMT recently closed the acquisition of InSite Wireless Group, one of the largest privately owned tower and wireless infrastructure companies in the United States. The company aims to drive leasing activities on these new sites to enhance mobile broadband connectivity as 5G deployment intensifies globally.
In the third quarter ended September 30, 2020, AMT generated $2.01 billion in revenues, increasing a mere 3% year-over-year, as property revenue grew 3.4% during the quarter on the back of new technology deployment. The company spent approximately $101 million during the quarter to acquire 305 communications sites, primarily in international markets, including 195 communications sites in France. However, AMT delivered funds from operations (FFO) of $874 million, representing a 3% decline year-over-year.
Analysts at Deutsche Bank (DB) recently downgraded the stock citing headwinds the company might face in effective 5G deployment. Additionally, over the last three months, we saw significant insider selling at AMT. In total, Senior VP & Chief Accounting Officer Robert Meyer sold $242k worth of shares during that period, and we did not record any purchases. Though the Street expects AMT’s FFO to rise 30% this year, the company has an unimpressive earnings surprise history, with AMT failing to meet consensus EPS estimates in each of the trailing three quarters.
AMT closed yesterday’s trading session at $220.71 and is down 9.3% in the past three months. The stock has lost 3.5% over the past year and has retreated 19% from its 52-week high of $272.20.
AMT’s POWR Ratings are consistent with this bleak outlook. It has been accorded a “D” for Industry Rank, and a “C” for Trade Grade, Buy & Hold Grade and Peer Grade. It is ranked #19 of 55 REITs – Diversified stocks.
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INTC shares were trading at $50.67 per share on Wednesday morning, up $0.06 (+0.12%). Year-to-date, INTC has gained 1.71%, versus a -0.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…
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