The semiconductor industry continues to witness high demand from the consumer electronics and Electric Vehicle (EV) industries. The soaring demand and limited production resulted in a massive shortage of semiconductor chips worldwide, further aggravated by the supply disruptions caused by the Russia-Ukraine war. However, manufacturers are ramping up production with government support to meet the increased demand.
Semiconductors are used in everything, from smartphones and computers to cars and home appliances. With the growing applicability of chips in the Internet of things (IoT), Artificial intelligence (AI), 5G network, and cloud computing, the demand for chips should keep rising.
The federal funding for the $52 billion CHIPS Act, which is yet to be passed, should further boost the industry’s growth. According to a report by Fortune Business Insights, the global semiconductor market is expected to grow at a CAGR of over 12.2% by 2029.
Given this backdrop, investing in quality chip stocks United Microelectronics Corporation (UMC) and Renesas Electronics Corporation (RNECF) could be wise. These stocks are currently trading under $10 but hold immense upside potential.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a leading global semiconductor foundry that operates through two segments: Wafer Fabrication and New Business. It offers high-quality IC fabrication services, focusing on logic and various specialty technologies to all electronics industry segments.
On April 26, 2022, UMC’s subsidiary United Semiconductor Japan Co., Ltd., collaborated with DENSO Corporation to produce power semiconductors at its 300mm fab to serve the growing demand in the automotive market. This partnership is expected to boost domestic semiconductor production and expand UMC’s portfolio in the automotive segment.
UMC’s operating revenues increased 34.7% year-over-year to NT$63.42 billion ($2.12 billion) for the first quarter ended March 31, 2022. Its gross profit increased 120.1% year-over-year to NT$27.50 billion ($919.86 million). The company’s net income increased 102.9% year-over-year to NT$20.07 billion ($671.33 million), while its EPS came in at NT$1.58, representing an increase of 88% year-over-year.
Analysts expect UMC’s EPS and revenue for the fiscal second quarter (ended June 2022) to increase 85.2% and 27.3% to $0.33 and $2.32 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has lost 13.1% to close the last trading session at $6.93.
UMC’s POWR Ratings reflect solid prospects. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B grade for Growth and Value. It is ranked first out of 95 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to see the other ratings of UMC for Momentum, Stability, and Sentiment.
Renesas Electronics Corporation (RNECF)
Headquartered in Tokyo, Japan, RNECF is a premier supplier of advanced semiconductor solutions and products through two segments: Automotive and Industrial, Infrastructure, and IoT Business.
On June 29, 2022, the company partnered with Tata Motors Ltd. and Tejas Networks Ltd. to develop semiconductor solutions to accelerate progress in advanced electronics for India and emerging markets. This strategic partnership is expected to benefit both companies and expand their footprint in the upcoming years.
On May 17, 2022, RNECF announced an investment of ¥90 billion ($652.30 million) to restart operations in its Kofu Factory as a 300-mm wafer fab for manufacturing power semiconductors. Considering the growing demand for EVs, enhancing power semiconductor production capacity could fuel significant revenues in the upcoming years.
For the first quarter ended March 31, 2022, RNCEF’s revenues increased 70.2% year-over-year to ¥346.70 billion ($2.51 billion). The company’s operating income grew 231.5% from the year-ago value to ¥100.08 billion ($725.35 million), while its net profit increased 333.4% year-over-year to ¥59.84 billion ($433.70 million). Also, its EPS came in at ¥30.15, representing an increase of 289% year-over-year.
For the quarter ended June 30, 2022, RNECF’s revenue is expected to increase 36.9% year-over-year to $2.72 billion. The stock has lost 7.8% over the past month to close the last trading session at $9.24.
RNECF’s POWR Ratings reflect these solid prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It also has an A grade for Growth and a B for Value and Stability. Within the same industry, it is ranked #5. To see the other ratings of RNECF for Momentum, Sentiment, and Quality, click here.
UMC shares were trading at $6.90 per share on Wednesday morning, down $0.03 (-0.43%). Year-to-date, UMC has declined -41.03%, versus a -16.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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