That companies like ON Semiconductor (ON)
will survive the next phase of the semiconductor cycle is not in doubt
to me, but what this corrective phase will look like is still very much
up for debate. It’s not unreasonable to think that the adjustment from
recent record highs in lead-times will lead to a more painful cycle than
that seen in 2015, but then there are secular growth drivers helping ON
Semiconductor that I’m not going to just dismiss out of hand.
When I last wrote about ON I said
“…but the risk of near-term turbulence is something to consider …”, but
I didn’t really think the shares would drop by roughly one-third in
just a few months. Certainly the sector-wide declines in semiconductor
stocks are being driven more by fear and momentum than truly horrible
conditions (and/or outlooks), but that doesn’t make the losses sting any
less. Moreover, with no real end in sight to the trade dispute between
the U.S. and China, it’s tough to know whether the industry can manage a
graceful dismount from the record lead-times as demand slows in markets
like auto, handsets, data centers, and industrial.
I
think the valuation is still quite interesting for long-term investors,
but I also think the near-term still holds outsized risks. While the
shares should be trading at least in the low $20’s, sentiment is poor
now and semi stocks are likely to stay in the doghouse through at least
the middle of 2019.
Read the full article here:
ON Semiconductor Feeling The Heat From The Street
