20161009-高盛-3Q16_EPS_preview__Stay_selective__focus_on_idiosyncratic_stories_31页_693kb

Summary of 3Q16 Semiconductor Sector Analysis

Core Content Overview

This document provides an equity research analysis of the semiconductor sector in the Americas for the third quarter of 2016. It outlines the current market environment, key end-market trends, and specific investment recommendations based on earnings expectations, valuation metrics, and company-specific growth opportunities.

Market Environment

• The NTM P/E ratio for the broader semiconductors group increased by 1.0X from 14.4X to 15.4X during the quarter.
• Despite flat to slightly positive EPS revisions for 2016 and 2017, the sector has seen elevated valuations, driven by M&A activity such as:
  • Softbank/ARM (announced 7/18)
  • ADI/LLTC (7/26)
  • GlobalWafers/SEMI (8/17)
  • Renesas/Intersil (9/13)
• The mixed end-demand environment across different sectors suggests a need for selective investment.

Investment Recommendations

Buy Recommendations

• AVGO (Broadcom): Expected to deliver a beat-and-raise quarter due to better-than-feared high-end smartphone demand. Strong potential for M&A or dividend increase.
• NVDA (Nvidia): Strong performance anticipated in the gaming segment and across most end-markets. Benefiting from a robust product cycle and positive industry commentary on AI and GPU-based services.
• NXPI (NXP Semiconductors): Positive results expected from automotive content growth and cost synergies from the Freescale integration.
• SWKS (Skyworks Solutions): Anticipated margin upside from improved high-end smartphone market conditions and better inventory management.
• AMAT (Applied Materials): Top pick in the Semiconductor Process Equipment (SPE) segment due to sustained capex growth from 3D NAND expansion and competitive dynamics in logic/foundry.

Sell Recommendation

• TXN (Texas Instruments): Despite strong execution, the relative valuation makes the stock less attractive, with current multiples not justified by low topline growth and below-average EPS growth.

Key End-Market Insights

• PCs: Near-term strength driven by inventory replenishment rather than a true demand recovery. Positive signs of improving demand from Intel and ODM data.
• Handsets: Tight supply in high-end smartphones and positive trends in the market.
• Automotive: Continued content growth is expected to offset potential demand slowdown in China. US SAAR is at a peak.
• Industrial: Mixed fundamentals due to conflicting macroeconomic data.
• Comms: Inventory remains below historical levels, but continued weakness in demand is expected, with carrier capex projected to decline by 8% in 2016.

Valuation and Earnings Expectations

• NTM P/E: Expanded to 15.4X, with the SOX up 16% since mid-July.
• 3Q16 Earnings: Most estimates are above seasonal expectations, reflecting company-specific growth and product cycles.
• 4Q16 Earnings: Estimates are expected to be above seasonality for most semis, with some exceptions.
• Full-Year 2016 EPS: In line with Street estimates for both semis and SPE.
• Valuation Concerns: Elevated multiples and limited upside to estimates suggest a Neutral stance on the sector overall.

Price Target Revisions

• AVGO: Raised to $218 from $205.
• NVDA: Raised to $76 from $70.
• NXPI: Raised to $118 from $110.
• SWKS: Raised to $88 from $82.
• INTC: Raised to $39 from $36.
• TXN: Maintained at $59.
• AMAT: Raised to $33 from $29.75.
• Other Revisions: Reflect updated views on growth drivers and market conditions.

Earnings Dates

• 18-Oct: INTC, LLTC
• 19-Oct: XLNX, LRCX, NXPI, TER
• 20-Oct: MXIM
• 26-Oct: TXN
• 3-Nov: SWKS, NVDA
• 9-Nov: QRVO
• 17-Nov: AMAT, AVGO, KEYS

Inventory Trends

• Overall: Bottom-up inventory appears reasonable, with most end-markets at or below historical levels.
• PCs: Inventory flat exiting 2Q16, with expectations of stability heading into the holiday season.
• Handset and Comms: Inventories are below historical levels, but the comms segment is expected to remain weak.
• DRAM, MPU, MCU: Under-shipping by 4–9% compared to normalized demand.
• Logic, Analog, Discrete: Over-shipping by 5–8% compared to normalized demand.

Key Takeaways

• The semiconductor sector is underpinned by mixed end-demand and elevated valuations.
• Investors are advised to remain selective, focusing on companies with strong growth stories and minimal EPS risk.
• M&A activity and inventory replenishment are key drivers of near-term performance.
• While the overall sector is Neutral, specific companies like AVGO, NVDA, NXPI, SWKS, and AMAT are highlighted as strong performers.