Cycle Worries Weighing On Renesas Electronics And Creating A Bargain Valuation

Semiconductor stocks are off their lows, but I certainly wouldn’t say that sentiment is particularly healthy – lead-times have started to shrink and companies have started openly acknowledging customers inquiring about pushouts (if not outright cancelations). With declining ASPs likely to push total industry revenue into contraction next year, valuations have retreated to the low end of historical ranges.

Japan’s Renesas Electronics (OTCPK:RNECF) (OTCPK:RNECY) (6723.T) has been holding up relatively well with respect to reported results since my last update, and the shares haven’t done too badly – more or less keeping pace with peers like NXP Semiconductors (NXPI) and ON Semi (ON), though modestly lagging Microchip (MCHP) and Texas Instruments (TXN), and lagging SiC-driven rivals like Infineon (OTCQX:IFNNY) and STMicro (STM) more significantly.

At this point I continue to believe that Renesas shares are meaningfully undervalued. Auto chip demand is holding up better and inventories are not particularly robust heading into a year where many OEMs are looking to catch up on deferred production schedules. I don’t ignore the risk of a steeper decline in the non-auto business, but I like Renesas’s leverage to auto MCUs and ADAS, as well as longer-term opportunities in industrial MCUs and integrated solutions, and I think today’s valuation is too low.

 

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Cycle Worries Weighing On Renesas Electronics And Creating A Bargain Valuation