Seeking Alpha: Softer Markets And Weak Execution Are An Ugly Mix For Atmel

I wasn't overly fond of Atmel's (NASDAQ:ATML) valuation back in March, but I did think there was a chance that this chip company would see itself swept up in the M&A boomlet across the chip industry. The market thought so too, taking the shares up almost 20% at the peak after my last article. Then harsh reality started to set in, as markets like computing, handsets, and general industrial started looking weaker and weaker. All told, the shares sit about 6% lower than where they were at the time of that last writing, but now sentiment is definitely more sour - on chips in general and Atmel's execution/guidance issues in particular.

I still think that a sale of the company is a distinct possibility. The company's microcontroller business represents a relatively scarce asset that could appeal to companies ranging from Analog Devices (NASDAQ:ADI) to Microchip (NASDAQ:MCHP) to Texas Instruments (NASDAQ:TXN), with Avago (NASDAQ:AVGO) and Qualcomm (NASDAQ:QCOM) as potential long-shot bidders as well. If the company doesn't sell, better execution is an absolute must and likely to be the first priority for the new (and as of yet unannounced) CEO. Atmel does have a legitimate opportunity in front of it with increasing chip content in autos and the growth of Internet of Things (or IoT) applications, but past foibles make it an entirely legitimate question as to if the company can actually deliver on the potential.

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Softer Markets And Weak Execution Are An Ugly Mix For Atmel

Seeking Alpha: ON Semiconductor Talking The Talk, But Still Has To Walk The Walk

Near a 52-week high, things have been going fairly well for the shares of ON Semiconductor (NASDAQ:ONNN). Like so many other semiconductor companies, ON Semiconductor is looking to lean more heavily on the auto and industrial markets to generate above-average growth with more stability. Like so many others, ON is also looking to higher utilization, an improved mix, and internal efficiencies to generate the operating margin leverage that semiconductor analysts (and investors) prize so highly).

I can't say that I'm disappointed with how ON Semiconductor has been performing. The shares are up more than 40% from my last article and about 70% from when I wrote about the shares as a Top Idea. Relative to peers/rivals like Fairchild (NASDAQ:FCS) (up 42%), STMicroelectronics (NYSE:STM) (up 7%), and Diodes (NASDAQ:DIOD) (up 5%), that's not too bad, and it also stacks up well against stocks like Texas Instruments (NASDAQ:TXN) and Linear Technology (NASDAQ:LLTC).

Even with those positives, I'm not quite as bullish about ON as I have been in the past. The Sanyo deal is a lemon and management has its work cut out to prove that the Aptina deal will be better. Likewise for the company's bold projections for 2017 margins when past projections have proven too ambitious. Although the company's margins can support a EV/revenue multiple that would generate a $15 fair value, my blended fair value (EV/revenue and DCF) is closer to $13.50; making the shares a decent hold but maybe not such a compelling buy unless you are really confident in the potential for above-average growth and strong margin leverage.

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ON Semiconductor Talking The Talk, But Still Has To Walk The Walk

Seeking Alpha: Without A Bigger Discount, Maxim Not So Interesting Today

Six months ago, I thought the Street had overreacted to disappointing results at Maxim Integrated Products (NASDAQ:MXIM) to such an extent that the stock looked like a good relative value in the space. Since then, the shares have done pretty well relative to its peer group - up about 15% while Linear (NASDAQ:LLTC) and Analog Devices (NASDAQ:ADI) were up in the single-digits and a stock I liked better, ON Semiconductor (NASDAQ:ONNN) rose about 16%.

Maxim is still facing the same basic set of challenges - finding new sources of growth now that Samsung is no longer likely to be a significant growth driver in the coming years. Maxim is saying and doing some of the right things, including getting out of low-margin businesses like consumer MEMS and touch and focusing on higher-growth opportunities in industrial and auto, but I'm concerned about the company's ability to truly differentiate itself. With the valuation looking pretty fair today, I don't dislike the stock but can't work up a lot of excitement to buy in today.

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Without A Bigger Discount, Maxim Not So Interesting Today

Seeking Alpha: Linear Technology's Opportunities, And Challenges, Remain The Same

Six months have passed since my last article and not too much has changed for Linear Technology (NASDAQ:LLTC) on a fundamental basis. The company still has some exciting opportunities in the industrial and automotive verticals, but is also facing serious competition from Texas Instruments (NASDAQ:TXN) and Analog Devices (NASDAQ:ADI) (among many others) and widespread doubts that the company can take industry-leading margins much higher.

I thought Linear was more or less fairly valued six months ago (the shares are up 2% since) and that is still my opinion. Improving growth in the U.S., particularly in the industrial vertical, ought to help but probably not enough to radically alter sentiment. The company does have a large amount of cash, though, so additional capital returns to shareholders and/or acquisitions cannot be ruled out.

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Linear Technology's Opportunities, And Challenges, Remain The Same

Seeking Alpha: Is This A 'Buy The Dip' Opportunity At Maxim Integrated Products?

With a very disappointing outlook for the next quarter and renewed worries about Maxim Integrated Products' (NASDAQ:MXIM) ability, or lack thereof, Maxim shares are off significantly amidst some broader renewed worries about the chip sector. This may be one of those "buy the dip" opportunities that investors are always supposed to be looking or waiting for, but the outlook is admittedly a reason to pause. That's the problem with "buy the dip" opportunities - stocks rarely sell off because they're forgotten or a sloppy block sale pushes down the price; usually something pretty scary is going on in the underlying business.

The sell-off here does look too steep, but I'm not in a rush to add this to the top of my buy list. When I last wrote about Maxim, I cited some concerns that the company may not diversify away from Samsung as quickly or successfully as hoped, and that may be coming home to roost. Still, value is value, and unless the outlook at Maxim really crumbles over the next six to 12 months, these shares look 10% or more undervalued.

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Is This A 'Buy The Dip' Opportunity At Maxim Integrated Products?

Seeking Alpha: Can Linear Technology Match Quality With Growth?

High-performance analog specialist Linear Technology (NASDAQ:LLTC) runs itself differently than most semiconductor companies; Linear will turn down business that doesn't meet its margin targets and has maintained an almost unbelievable level of year-in year-out free cash flow generation. Linear hasn't registered all that much growth, though, and for all that the company's great margins matter, the company isn't as generous in sharing its prosperity with shareholders. Amidst various valuation methodologies Linear looks somewhere between 12% overvalued and 12% undervalued, and although the company has some interesting growth opportunities, it may take more generous payouts to move the shares significantly.

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Can Linear Technology Match Quality With Growth?

Seeking Alpha: Healthy Auto And Industrial Markets Could Take Analog Devices A Little Further

Analog specialist Analog Devices (ADI) has been a middle-of-the-road performer over the past year. While the company's margins remain at or near the top of the charts, revenue growth has been relatively less impressive and the stock performance (up about 12% over the past year) is squarely in the middle of analog peers/rivals like Texas Instruments (TXN), Linear Technology (LLTC), Maxim Integrated (MXIM), and ON Semiconductor (ONNN).

I'm not looking for Analog Devices to be a huge outperformer from here. The company's decision to steer 80% of free cash flow to shareholders won't hurt, and neither will the company's strong position in industrial and auto markets nor its leverage to China's LTE rollout. My discounted cash flow model doesn't suggest all that much long-term undervaluation today, though the company's margins do argue for a fair value closer to the mid-$50s.

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Healthy Auto And Industrial Markets Could Take Analog Devices A Little Further

Seeking Alpha: Atmel Now An Execution Story

Opportunity is not the problem for Atmel (ATML). There are multiple growth avenues for the company's large microcontroller business, not the least of which is the Internet of Things (or IoT) opportunity. There is also still an opportunity for Atmel to make good on the potential of XSense, participate in auto market growth, and continue to wring cash from its memory business.

The problem is execution. The company's touch business, and XSense in particular, haven't developed as hoped and the company has more of a recent history of promising rather than delivering. The potential is there to take this stock to $10 (or higher), and management compensation appears aligned with investor interests, but Wall Street seems to be sliding into a "show me" skepticism with this company and this stock.

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Atmel Now An Execution Story

Seeking Alpha: ON Semiconductor Coming Along

Up around 22% since I wrote about it as a Top Idea, I can't complain too much about how the ON Semiconductor (ONNN) has developed. The company's SANYO business still isn't up to snuff, but the company's leverage to industrial and auto markets puts it in the right place at the right time. Rising inventories are a potential area of concern, but ON still has more margin upside than the average analog chip company today.

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ON Semiconductor Coming Along

Seeking Alpha: Maxim Has Room To Run A Little Further, But Long-Term Concerns Remain

The market is telegraphing quite a bit of optimism about the chip sector for the start of 2014. Better demand from industrial and auto customers ought to help, as should a comms market driven by China's 4G rollout. As Maxim (MXIM) has exposure to all of those markets, this could be a good first half of the year for this analog chip company and the company's valuation looks a little low relative to its peer group. This may be more of a date than a long-term commitment, though, as the company's outsized exposure to Samsung and high-end smartphones are still causes for concern.

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Maxim Has Room To Run A Little Further, But Long-Term Concerns Remain

The Motley Fool: Linear Technology: Love the Story, But Not the Price

You can fill a lot of pages with what is right about Linear Technology (NASDAQ: LLTC  ) . Not only is Linear among the leaders in the analog chip space, but it has a long history of excellent profitability. In fact, profitability is so important to the company that it let go of Apple's business when the margins no longer met management's standards.


Looking ahead, there's real growth potential for Linear in the industrial and auto markets in the coming years. Linear isn't the only company prioritizing these markets, as ON Semiconductor Analog Devices, and Texas Instruments are there too, but the potential of grabbing a larger share of auto OEM content and leveraging the Dust acquisition in factory automation is compelling. Alas, the price is not so compelling and investors need to really be sure that Linear is going to continue topping estimates for the stock to work at this price level.
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Linear Technology: Love the Story, But Not the Price

Seeking Alpha: ON Semiconductor Catching Bids On Improving 2014 Sentiment

There have been multiple false dawns in the chip sector, but it looks like investors are positioning themselves for a better 2014. ON Semiconductor (ONNN) is benefiting from that trend, as the shares are up about one-quarter from November and have beaten both the S&P 500 and Nasdaq since I wrote favorably on the shares in mid-August.

Multiple things should go right for the company in 2014, as weaker markets like computing should be close to stabilizing and the company leverages opportunities to go up-market in industrial, communications, and autos. ON Semiconductor's efforts to fix the problem-child that is SANYO should also start to pay off in a more meaningful way. Clearly there are a lot of "shoulds" there, but I believe ONNN shares are still worth something more on the order of $10 today.

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ON Semiconductor Catching Bids On Improving 2014 Sentiment

Investopedia: Analog Devices' Slow Walk To Better Days

The still-awaited semiconductor recovery is certainly taking its sweet time in getting here. In the meantime, Analog Devices (NYSE:ADI), one of the leaders in the analog space, remains in something of a holding pattern. Although the stock has done pretty well as investors look forward to better utilization driving higher margins and larger cash returns to shareholders, the business is still waiting to see sustained demand improvement in its end markets.

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Investopedia: Texas Instruments Just Out Of The Starting Blocks

I'm not going to say that every part of the semiconductor space is back on track, but the earnings and guidance that coming suggests that things are getting better outside of consumer electronics and PCs. That's good news for Texas Instruments (NYSE:TXN), particularly as the company is seeing stronger conditions in industrial and auto markets and better margins in the wake of moving on from wireless. Although the stock does not look cheap on a cash flow basis, I do believe the company's margin leverage, and subsequent improvements in ROE, are likely to send the shares higher over the next 12 to 24 months.

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Investopedia: Will The Recovery Underwhelm Linear Technology Investors?

Analog chip companies have largely been marking time this year, with individual stock performances bracketing the performance of the S&P 500. With expectations for a recovery in industrial, auto, and communications already factoring into the valuations, though, it's worth asking if expectations have gotten a little overheated. Between slower-than-expected industrial markets, high trailing inventory, and a relatively low payout ratio, Linear Technology (Nasdaq: LLTC) seems a little expensive at the current price.

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Investopedia: The Recovery Proving Slow To Arrive For Analog Devices

Since Analog Devices (NYSE:ADI) reports off the normal calendar cycle, the company's earnings reports can serve as a sort of “mid-quarter” update on the analog sector. To that end, what Analog Devices had to say wasn't terribly encouraging. While there are seasonal recoveries underway in the industrial and auto sectors, signs of a big recovery are still lacking. With many players in the analog sector already having traded up on recovery expectations, value investors may find this stock a little lacking in appeal.

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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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Seeking Alpha: Analog Devices Already Pricing In A Recovery

As a general rule, semiconductors are great second-chance stocks as the ups and downs of this surprising cyclical industry take the stocks on roller-coaster rides. Unfortunately for investors just coming back around to check on Analog Devices (ADI), the market has already more than counted on a solid recovery at this leading analog chip company. Improving sell-side estimates and better-than-expected operating leverage could lead to more upside in this recovery cycle, but this isn't a fundamentally cheap stock anymore.

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Analog Devices Already Pricing In A Recovery

Investopedia: Linear Technology May Not Be The Best Rebound Play

I've made no secret in the past of my respect for Linear Technology (Nasdaq:LLTC). This specialist in high-performance analog (HPA) chips is not only one of the largest analog chip companies; it boasts some of the strongest margins and long-term returns on capital in the industry.

Although I believe the company is in a good position to meet growing demand in the industrial and automotive categories, I'm less confident that its business philosophy makes it a great pick for a chip rebound.

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Investopedia: ON Semiconductor Still Looking For Leverage

As investors open the books on 2013, there was widespread hope that this will be the year in which the semiconductor industry turns around. While a better demand environment would certainly help ON Semiconductor (Nasdaq:ONNN), internal operating leverage is even more important to the company's financial results. This stock is not tremendously compelling on a long-term basis, but if ON Semiconductor starts delivering better margins, better earnings and a revaluation of those earnings could make this a winning stock.

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