Semiconductor Showdown: AMD, ADI, TXN, ONNN, MXIM

NEW YORK (TheStreet) -- It's been a year of ups and downs for shares of the semiconductor industry as disappointing fourth-quarter guidance curtailed a strong run-up mid-year. As the industry becomes increasingly crowded, which circuit makers come out on top and which are set to drop?

MKM Partners has revised its ratings on the semiconductor industry in a research report Monday, explaining:

"Our view on semiconductor end-markets continues to be most positive on data center exposure (a multi-year secular growth trend) followed by communications (on a growth trajectory despite lumpiness). Other end-markets face continued challenges, with little visibility on the timing of a material recovery."

For analog semiconductors Texas Instruments (TXN) and Analog Devices (ADI), MKM maintains its "neutral" rating with a price target of $41 and $33, respectively, on the view the companies operate in a "low-single-digit grow market".

For Advanced Micro Devices (AMD), MKM holds a "neutral" rating and a price target of $3, as its PC and CPU strength is threatened by Intel's (INTC) manufacturing dominance.

MKM holds a more positive view of Maxim Integrated Products (MXIM), upgrading the stock to a "buy" with a price target of $35, as the company is well-positioned in the smartphone and data center spaces.

Formerly "buy"-rated, ON Semiconductor Corporation (ONNN) has been downgraded to "neutral" with an $8 price target, as its "highly diversified and manufacturing-heavy" model relies heavily on a global macroeconomic recovery.

By mid-morning, Analog Devices had shed 0.22% to $50.58, Texas Instruments remained flat, Advanced Micro Devices climbed 0.43% to $3.52, Maxim was up 0.6% to $29.36 and ON Semiconductor plummeted 1.4% to $7.

TheStreet Ratings team rates Texas Instruments Inc as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate Texas Instruments Inc (TXN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, TXN's share price has jumped by 48.22%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, TXN should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, Texas Instruments Inc's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for Texas Instruments Inc is rather high; currently it is at 61.56%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 19.38% trails the industry average.
  • Despite currently having a low debt-to-equity ratio of 0.47, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that TXN's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.88 is high and demonstrates strong liquidity.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.4%. Since the same quarter one year prior, revenues slightly dropped by 2.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

TheStreet Ratings team rates Analog Devices as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate Analog Devices (ADI) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, increase in stock price during the past year, increase in net income and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ADI's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 9.75, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly increased by 59.77% to $220.03 million when compared to the same quarter last year. In addition, Analog Devices has also vastly surpassed the industry average cash flow growth rate of -29.61%.
  • ADI's share price is up by an impressive 26.72% over the past year, but this positive result lagged behind an even stronger performance in the stock market as a whole, as reflected in the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ADI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the Semiconductors & Semiconductor Equipment industry average, but is less than that of the S&P 500. The net income increased by 3.8% when compared to the same quarter one year prior, going from $169.77 million to $176.24 million.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.4%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.

TheStreet Ratings team rates Advanced Micro Devices as a Sell with a ratings score of D+. The team has this to say about their recommendation:

"We rate Advanced Micro Devices (AMD) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally high debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, Advanced Micro Devices' return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is very high at 4.72 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, AMD's quick ratio is somewhat strong at 1.10, demonstrating the ability to handle short-term liquidity needs.
  • Advanced Micro Devices reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Advanced Micro Devices swung to a loss, reporting -$1.59 a share vs. 65 cents a share in the prior year. This year, the market expects an improvement in earnings (-12 cents a share vs. -$1.59 a share).
  • 39.22% is the gross profit margin for Advanced Micro Devices which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, AMD's net profit margin of 3.28% significantly trails the industry average.
  • Net operating cash flow has significantly increased by 108.75% to $21 million when compared to the same quarter last year. In addition, Advanced Micro Devices has also vastly surpassed the industry average cash flow growth rate of -29.61%.

TheStreet Ratings team rates ON Semiconductor Corp as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate ON Semiconductor Corp (ONNN) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 314.4% when compared to the same quarter one year prior, rising from $12.5 million to $51.8 million.
  • Net operating cash flow has significantly increased by 403.36% to $59.9 million when compared to the same quarter last year. In addition, ON Semiconductor Corp has also vastly surpassed the industry average cash flow growth rate of -29.61%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • ONNN's debt-to-equity ratio of 0.62 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.14 is sturdy.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, ON Semiconductor Corp's return on equity significantly trails that of both the industry average and the S&P 500.

TheStreet Ratings team rates Maxim Integrated Products as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate Maxim Integrated Products (MXIM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MXIM's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.97, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, Maxim Integrated Products' return on equity exceeds that of both the industry average and the S&P 500.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • Maxim Integrated Products' earnings per share declined by 16.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Maxim Integrated Products increased its bottom line by earning $1.52 a share vs. $1.17 a share in the prior year. This year, the market expects an improvement in earnings ($1.70 a share vs. $1.52 a share).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.4%. Since the same quarter one year prior, revenues slightly dropped by 6.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

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