Xilinx Emerges As A Semiconductor Unicorn And Shivs The Shorts

Not too many semiconductor stocks have reported as of this writing, but with the Texas Instruments (TXN) and Intel (INTC) reports in, it looks like the market's fears of another round of downward guidance revisions for the first quarter are materializing. But then, there's Xilinx (XLNX) - quite possibly a true unicorn this quarter in not only reporting very strong growth (revenue up 34% yoy and 7% qoq) but also guiding UP for the next quarter.

With strong earnings and the 5G opportunity seeming to come through sooner than expected, Xilinx shares shot up almost 20% and set a new 52-week high. Xilinx has a legitimate, differentiated opportunity with its strong FPGA and FPGA/SoC portfolio, including near-term opportunities like 5G wireless and auto ADAS and longer-term opportunities like data center/AI and autonomous driving. Although I think Xilinx can generate double-digit long-term revenue growth and that today's DCF-based fair value isn't unreasonable, it's certainly not an overlooked opportunity at this point.

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Xilinx Emerges As A Semiconductor Unicorn And Shivs The Shorts

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.

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Renesas Pummeled On Inventory Corrections And Worsening Macro

Seeking Alpha: For Nvidia, Execution Is The Best Answer

Credit where it's due - NVIDIA (NASDAQ:NVDA) (or "Nvidia") has executed a lot better over the past year than I thought it would and the shares reflect that. Nvidia's stock has risen close to 70% over the past year, leaving just about everybody in the dust. It is to management's credit that it has driven performance to a point where concerns about the loss of licensing revenue from Intel (NASDAQ:INTC) and still-significant exposure to gaming are secondary relative to the emerging long-term opportunities in markets like virtual reality, data centers, "deep learning" and autos.

Clearly the company will have to maintain its execution edge, and companies like Intel, Advanced Micro (NASDAQ:AMD), and Mobileye (NYSE:MBLY) have their own growth plans that don't include letting Nvidia beat them. I think Nvidia can continue to leverage its expertise in GPUs to grow and diversify the business, but it's hard to call the stock really cheap at these levels unless you believe auto (or other markets) can drive long-term double-digit free cash flow growth from here - a tall order for a company of Nvidia's size, but not impossible.

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For Nvidia, Execution Is The Best Answer

Seeking Alpha: How Do You Solve A Problem Like Qualcomm?

Referencing a 56-year old song for the title of an article about a tech company is admittedly bizarre, but then so too is Qualcomm's (NASDAQ:QCOM) situation. The acknowledged leader in handset baseband and app processors, the stock is down about 25% over the past year, as weaker handset sales momentum and weaker margins have really started to bite hard.

Qualcomm is in the enviable situation of having a pretty darn good business in hand, as well as ample cash (and cash flow) to fund complementary or expansionary M&A. The question is whether the company has the courage (and/or vision) to risk the short-term wrath of investors in order to improve the long-term outlook. Although the company's valuation does stand out in an otherwise expensive crowd, I'm not so proud that I won't admit that I really don't know what to do about the shares.

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How Do You Solve A Problem Like Qualcomm?

Seeking Alpha: Nvidia Looking To Leverage Serial Transformation

Not evolving with the times is basically suicide for a semiconductor company, but Nvidia (NASDAQ:NVDA) has gone a little further than most with its transformations over the years. Once seen as a graphics chip company, management has long since leveraged the company's IP into markets outside of traditional graphics processing/gaming and is now looking at markets like automobiles and datacenters as meaningful future growth drivers. Not only that, the company's IP position gives it at least a fighting chance of morphing further into a hybrid chip/software/technology company.

How to value it is the key question. I'm accustomed to seeing significant gaps between FCF-driven and OM-EV/Rev-driven approaches, but the gap here is pretty large. What's more, there are definite uncertainties as to the future of the high-margin revenue Nvidia derives from its IP business. I don't see a lot of downside risk unless the gaming market suddenly tumbles, but investors are likely going to need to exercise some patience to see a delivery on the potential here.

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Nvidia Looking To Leverage Serial Transformation

Investopedia: Marvell - Unicorn Of The Chip Space?

Reading sell-side research on Marvell (Nasdaq:MRVL), you might come away not thinking too highly of the company or its decisions to grow the business in areas like Chinese mobile and wireless. On the other hand, look at the company's actual market share gains, financial performance, and the market's opinion on the company and you come away with a much different opinion. So far, the bulls in that argument are winning the day, as Marvell has been outperforming names like Qualcomm (Nasdaq:QCOM), Broadcom (Nasdaq:BRCM), and Nvidia (Nasdaq:NVDA).

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Investopedia: Nvidia's Core May Be Strong, But Tegra Is Getting Expensive

Nvidia (Nasdaq:NVDA) generates a healthy amount of free cash flow and has maintained a strong GPU business despite but the pressures in the PC market, but analysts and investors have increasingly soured on the company's mobile ambitions. Tegra has yet to catch on, and with competition ramping up from Intel (Nasdaq:INTC), Qualcomm (Nasdaq:QCOM), Marvell (Nasdaq:MVRL), and others, this whole adventure may end up as little more than an expensive mistake. The shares don't look expensive even on undemanding assumptions, but Tegra-related concerns are likely to keep a lot of investors out of the shares.

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Investopedia: The AMD Story Sounds Very Familiar

There is a group of tech companies out there whose greatest accomplishment is simply staying in business over the span of decades. Advanced Micro Devices (NYSE:AMD) is a good example, as this company has a horrible record when it comes to generating cash flow or building/maintaining market share, but still seems to get investors re-excited about its prospects every so often. With no reason to believe that AMD will regain share in PCs, build share in tablets or microservers, or achieve any meaningful sustained cash flow from consoles, I see no reason to own AMD shares at this point.

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Investopedia: Nvidia Still Too Cheap And Still Very Controversial

At the risk of sounding like a Dos Equis commercial, I don't always write about Nvidia (Nasdaq:NVDA), but when I do, I'm usually pretty bullish on the company's long-term prospects. At the same time, though, I realize that Wall Street is firmly in the “show me” camp on this company and does not believe that it will succeed with its ventures into mobile devices and mobile gaming. This skepticism is why I've held off buying in so far (owning a stock that Wall Street wants to hate is fruitless and frustrating), but it's getting more and more tempting.

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Investopedia: Are Market Factors Pushing Qualcomm Into The Penalty Box?

Financial writers often talk about overlooked or obscure stocks as though it's a bad thing to operate outside of the 24-7 glare of Wall Street attention. When it comes to stocks like Qualcomm (Nasdaq:QCOM), though, maybe a little obscurity would be a good thing. Although I can understand that investors are worried about the fundamental trends in the mobile device market, it seems like matters always get taken up a notch when it involves Qualcomm. To that end, while I wouldn't be surprised if this stock remains volatile through the summer (or the remainder of the year, for that matter), I think the underlying value here still makes it worth a look.

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Investopedia: Texas Instruments Not Quite In The Clear Yet

We’re about one-third of the way into the year, and 2013 isn't shaping up as a banner year for chip stocks. Although there is a widespread expectation that the industrial and automotive markets will improve, analysts are still unsure of the path for communications infrastructure, handsets, consumer electronics, and PCs. With Texas Instruments (Nasdaq:TXN) holding on to considerable margin leverage tied to utilization, industry-wide order and shipment volumes could well point to just how strong of a year this large chip company will have.

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Investopedia: Wall Street Still Isn't Buying Nvidia's Story, But Should You?

Another quarter is in the books, and not all that much has changed about the Nvidia (Nasdaq:NVDA) story. Bulls believe that this company will be able to transition away from its PC graphics processor legacy and become a player in the processors that drive mobile devices. Bears take the view that not only will Nvidia struggle to compete against the likes of Qualcomm (Nasdaq:QCOM), Texas Instruments (Nasdaq:TXN) and Broadcom (Nasdaq:BRCM), but that the cost of trying will erode margins and the steady growth of mobile devices will undermine its legacy GPU business.

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Investopedia: Qualcomm Offers Some Rare Outperformance In Chips

Investors who've followed chips for a while probably won't be too surprised to see that, in a quarter largely defined by weak performance and lower guidance, Qualcomm (Nasdaq:QCOM) was one of the positive exceptions. Not only does Qualcomm continue to post impressive revenue gains, but the company's extensive spending forces rivals to up their game as well. While there are cheaper chip stocks out there right now, Qualcomm may be one of the best options in terms of its current results, future prospects and overall quality of operations.

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Investopedia: Nvidia Appears To Have A Lot To Prove

Wall Street can be a little funny in how it rewards "proven" stories with unsustainable multiples, but tends to seriously underestimate the future of companies that aren't on the list of darlings. Nvidia (Nasdaq:NVDA) is trying to recreate itself as a more diversified semiconductor company, but the Street seems to see relatively little chance of the company breaking free of its graphics processor legacy. By no means is success in fields like mobile processing a guarantee, but risk-tolerant investors may find the long-term risk-reward trade-off here to be interesting.

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Investopedia: Qualcomm's Growth Story Far From Over

Having already built up a thumping market share in mobile baseband chips, maybe some think that Qualcomm's (Nasdaq:QCOM) growth prospects have to be shrinking as the law of large numbers takes hold. That looks like a hasty (not to mention wrong) analysis - not only is Qualcomm continuing to leverage its current market strength, but the company is looking to expand into new markets that should add billions to its addressable market opportunity.

A Strong Start to the Fiscal Year  
Qualcomm reported that sales rose nearly 40% this quarter (and nearly 14% relative to the fiscal fourth quarter), beating the average analyst guess by more than $100 million. Both of the core businesses were strong - licensing saw revenue rise more than 36%, while the chip business had a gaudy 46% topline growth. MSM chip shipment rose 23% from the fourth quarter, and while the number of royalty-earning devices was a little shy of expectation, the average selling prices (ASP) have been stronger than forecasted.

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Investopedia: Intel - Pay Today To Grow Tomorrow

For better or worse, software giant Microsoft (Nasdaq:MSFT) and Intel (Nasdaq:INTC) are still tied together in many investors' minds. Both are former leading lights of the tech universe brought low by the perception that the evolution of new technologies will permanently cripple their growth prospects.
  
With a growing addressable market in areas like security and data, Intel's ability to flex its R&D and manufacturing muscle may well be underestimated by the Street today.

Beating Lower Numbers for the Fourth Quarter
Intel reported a fourth quarter that was broadly better than published estimates, though still shy of where most analysts had been on the stock a couple of months ago. Revenue slid more than 2% sequentially, but jumped 21% over last year as Intel had little choice but to endure the disruptions to the PC market brought on by the flooding in Thailand (and the subsequent issues with hard disk drive supply).



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Investopedia: Atmel's Investment Case Is Touch And Go

For years bears have been waiting for Atmel (Nasdaq:ATML) to come up with some sort of product to really stand out from the crowd. Now that they have it, the worries have shifted to whether the company may become too dependent on them and risk losing share to a host of would-be rivals. Although Atmel is not the safest pick in the chip space, several potential market rebounds could drive better results in 2012 and 2013.

Good Touch and Bad Touch  
Atmel's maXTouch solutions for touchscreen controllers have definitely spiced up its microcontroller business, though it is not the largest business yet. In this case the name is pretty self-explanatory; maXTouch chips allow for the touchscreen interfaces that are now so commonplace in smartphones and tablets. Atmel has garnered an early lead in this fast-growing market, in part due to technology good enough to get it in eight of the top 10 phones in early 2011.

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Investopedia: Wall Street Isn't Buying Nvidia's Story

Even allowing for the lousy, rotten, no-good summer for chips, Nvidia (Nasdaq:NVDA) has taken a pretty good pounding in its own right. Simply put, Wall Street just doesn't seem to buy the idea that the company's efforts to expand and diversify, beyond graphics chips, will succeed in making this anything more than an also ran. There's no shortage of risk in the Nvidia story, but investors who are willing to cast their lot with management could see some solid returns in the years to come.

A Solid Third Quarter 

Although Nvidia delivered a pretty good third quarter, it is almost certainly being overshadowed by investor worries about tech going into this calendar fourth quarter. Nvidia reported that revenue rose 26% from last year, and 5% from the prior quarter. Unfortunately, Nvidia was strongest where it's weakest - growth was 14% in the consumer segment (18% of sales), 10% in professional solutions (22% of sales) and just 1% in the graphics chip business (61% of sales).

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Investopedia: How Did Intel Do This?

The word "surprise" is a given whenever it's time to talk about earnings season, but Intel (Nasdaq:INTC) went above and beyond this quarter. Is Intel's robust growth, in spite of sluggish shipment data from leading PC makers, a sign that U.S. computer companies are more significant than ever before, is it a sign that Intel is gaining shares or is it a sign that dangerous levels of inventory may be building up in the channel? While Intel looks too cheap, no matter what the answer may be, the degree of volatility in this stock may hinge on the answer.

A Surprising Third Quarter  

To be fair, it's not as though Intel left the Street thunderstruck; revenue rose 28% from last year (and almost 9% from last quarter), and that was about 2% higher than the average analyst estimate. PC Group's revenue rose almost 22% this quarter with strong double-digit sequential growth in the notebook unit. The server group was no slouch either, with 15% growth, and the company's acquisitions of McAfee and Infineon's wireless business seem to be paying off.

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Investopedia: Apple's Secret Sauce Smothers Rivals

In the space of a week, two of Apple's (Nasdaq:AAPL) biggest potential competitors largely packed up their tents and conceded that they could not compete on their own in markets like smartphones and tablet computers. While the circumstances are indeed quite different - Hewlett-Packard (NYSE:HPQ) is basically exiting the consumer PC and portable electronics business, while Motorola Mobility (NYSE:MMI) accepted a buyout from Google (Nasdaq:GOOG) - the fact remains that precious few companies have taken Apple's best shot and come out swinging for the next round.



What makes Apple special? And perhaps more to the point, does Apple's way of doing business give it an enduring advantage on its current and would-be rivals?

The Squishy Bits
Words like "culture" are thrown around too readily sometimes, but there is at least some kernel of truth in the idea that a distinct operating philosophy can make a real difference at the bottom line. In the case of Apple, this is a company that largely trusts its own vision(s) and does not feel the need to endlessly consult with focus groups to take a committee approach to design. What's more, there are plenty of accounts that Steve Jobs has established a demanding culture at Apple where high expectations are the norm.



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