Semiconductor Stocks, Which Are Most At Risk for Order Cancellations

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There are concerns about order cancellations due to the rising inventory in the semiconductor industry. However, some stocks of semiconductors are more vulnerable to cancellations than others.




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William Stein, a Truist Securities analyst, identified several semiconductor stocks he believes are most at risk of order cancellations.

These chipmakers include Analog Devices (ADI), Microchip Technology (MCHP), NXP Semiconductors (NXPI), Onsemi (ON), Texas Instruments (TXN), and AMD (AMD)-owned Xilinx. After consulting with executives from two large distributors, Stein made the list.

He said Tuesday that chipmakers produce more of the “golden screw” needed to complete products.

Stein rates four of these semiconductor stocks as buys. He holds ratings for TI and AMD.


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Semiconductor Stocks Picture: Mostly Negative

Stein indicated that supply chain data suggest a decrease in semiconductor revenue over two quarters.

John Vinh, KeyBanc Capital Markets analyst, stated that he has seen mixed results from supply chain data for semiconductor stocks.

In a Tuesday note to clients, he stated that “from a cyclical viewpoint, increasing inventories, and easing lead time indicate a correction” in the second half of 2022.

He said that the demand for consumer end markets such as smartphones and PCs continues to decline. However, the demand for automotive, industrial, and cloud computing products is strong.

So, he decreased his sales estimates and stock prices for AMD. Nvidia (NVDA), Skyworks Solutions (SWKS( Synaptics (SYNA).

Vinh stated, “Channel inventories are running between 2.5 and 3 months, which was well above historical levels at 1.5 months. Some distribution partners indicated that end-customer stock increased by 50% quarter to quarter in Q2 with some distributor partners.

He said that the best-positioned semiconductor stocks are those with the greatest exposure to the industrial and auto end markets. These include Analog Devices. Indie Semiconductor (INDINXP and Onsemi.

The Chip Stocks’ Secular Winners

Alessandra Vecchi, a William Blair analyst, called three semiconductor stocks “secular losers” in the current upheaval in the chip industry. They are Monolithic Power Systems (MPWR), Lattice Semiconductor (LSCC( SiTime (SITM).

She said Tuesday that these semiconductor stocks are more protected from the traditional cycle of the chip cycle. She attributed this to secular tailwinds as well market share gains and higher margin products.

“Investor sentiment about semiconductors has been overwhelmingly negative due to persistent inflation, economic sensitivity of semis and fears that there is an inventory correction being led by the consumer end market, which saw handsets and computer rolls,” she stated.

According to industry pundits the chip cycle’s downturn began with consumer products and will continue to shift towards enterprise and data center markets. Vecchi indicated that the industrial market is likely to be the final to change.

Follow Patrick Seitz @ @IBD_PSeitzSee more stories about consumer technology, software, and semiconductor stocks

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