Wednesday, January 23, 2019

Renesas Pummeled On Inventory Corrections And Worsening Macro

Japan's Renesas Electronics (OTCPK:RNECY) (6723.T) is a microcosm of what worries me about the semiconductor industry heading into 2019. Elevated lead times and strong orders lead Renesas, its distributors, and its end-customers to build up inventories, and those inventories eventually got much too large, leading to a painful reset as demand has tapered off. In addition to this inventory correction process, there are growing worries about auto unit demand growth in 2019, not to mention demand from factory automation, appliance, and consumer device end-markets. More specific to Renesas is also, I believe, a growing concern over how the company stacks up competitively in the evolving auto semiconductor landscape.

Although I take the risks of share loss to competitors seriously, I think the shares are pricing in an extreme level of pessimism for Renesas's future. Even with near-term margin issues likely capping some of the upside, I believe the shares are just too cheap for one of the global leaders in microcontrollers and a company set to benefit from the acquisition of Integrated Devices.

Read more here:
Renesas Pummeled On Inventory Corrections And Worsening Macro

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