BofA Says Semiconductor Downturn Due; Downgrades Skyworks, Qorvo and Others

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BofA Securities analyst Vivek Arya downgraded semiconductor stocks Skyworks Solutions (NASDAQ:SWKS) and Qorvo (NASDAQ:QRVO) to Underperform from Neutral, and Teradyne Inc (NASDAQ:TER) and Texas Instruments (NASDAQ:TXN) to Neutral from Buy in a note to investors Wednesday.

Arya said semiconductor downturns happen every 3-4 years, and we could be due for another one, with tighter global monetary policy, geopolitical turmoil and consumer weakness likely to pressure chip demand.

“All-in we lower our CY22E semi sales forecast to $608bn (9.5% YoY vs. 13% prior) and CY23E to $604bn (-1% YoY vs 7% prior). This includes -4% YoY decline in non-memory chips, similar to past periods of 2-3% global GDP growth, likely the case next year,” wrote Arya.

The analyst downgraded Skyworks and Qorvo based on the maturity of the 5G smartphone cycle, elevated inventory, and rising competition from Qualcomm (NASDAQ:QCOM). Teradyne was downgraded due to the “uncertainty re extent of Apple (NASDAQ:AAPL) 3nm CY23 product ramp and on near-term China Android smartphone weakness.” Meanwhile, Texas Instruments was downgraded as rising capex pressures free cashflow generation/returns.

“Semiconductor industry downturns happen once every 3-4 years, usually when global GDP goes below 3% growth. Since 1995, the average semi downturn has produced sales declines of about 9%, including 15% in memory but only 5%-7% in non-memory, core semis. Today, while a macroeconomic deceleration can cause unit weakness, we do see unique pricing leverage providing some support for semis relative to historical levels.”

Arya lowered the price target on shares of Skyworks’ to $105 from $130, Teradyne to $110 from $140, Qorvo to $95 from $125, and Texas Instruments to $175 from $190.