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.

 

The full article can be found here: 

Cycle Worries Weighing On Renesas Electronics And Creating A Bargain Valuation

Growth Opportunities At Renesas Still Being Underappreciated

Renesas Electronics (OTCPK:RNECF) (OTCPK:RNECY) has been actively restructuring the business over the last five years, driving substantially better margins and cash flow, but investors continue to treat this company like a sluggish legacy vendor of commoditized semiconductors. While I do see risk from competitors like Infineon (OTCQX:IFNNY), onsemi (ON), NXP Semiconductors (NXPI), and STMicroelectronics (STM), I think it’s overly conservative to assume that Renesas is nothing more than a share-donor at this point, and I think the market is undervaluing both the revenue growth potential and the margin/profit/cash flow value of that revenue growth.

Since my last article, the shares (the U.S. dollar-denominated ADRs) have done a little better than the SOX, and I think today’s valuation is attractive. The biggest caveat now is the upcoming downturn or at least “adjustment process” in the semiconductor sector, as inventories are catching up and order cancellations are starting to appeal. That could make for a turbulent 12-24 month period (which arguably started eight months ago), but I think patient investors will like what Renesas does over time.

 

Continue reading here: 

Growth Opportunities At Renesas Still Being Underappreciated

Renesas Electronics Looking To Rise Like A Phoenix From A March Fab Fire

 

Between a painful inventory correction in 2019, the 2020/2021 pandemic, an earthquake, and a March fire in a key fab, Renesas Electronics (OTCPK:RNECF) (OTCPK:RNECY) (6723.T) has been snake-bit here of late, leading to a weak share price performance – the shares are down about 8% since my last update (the ADRs have done modestly better), underperforming the SOX by close to 10% over that short period.

Renesas has scrambled to minimize and mitigate the impact of the fab fire, and they’ve done quite a good job here. Far from a “lost year”, Renesas is still likely to see very strong revenue growth in 2021 on recovering auto and industrial demand, with solid margin leverage even accounting for the unexpected fire-related costs.

The biggest risk I see for Renesas is that the company ends up losing more microcontroller (or MCU) share in autos to NXP Semiconductors (NXPI) and others like Texas Instruments (TXN) and STMicro (STM), and that efforts to diversify the company’s addressable markets (including the Dialog Semi acquisition) don’t go to plan. I think those risks are more than captured by the share price, though, and I believe the shares offer an attractive double-digit long-term annualized return.

Read the full article here: 

Renesas Electronics Looking To Rise Like A Phoenix From A March Fab Fire