Tore Svanberg, Semiconductor sector analyst, managing director, Stifel Financial
Tore Svanberg is an analyst and managing director at Stifel Financial Corp specializing in the semiconductor sector. He joined the company with the acquisition of Thomas Weisel Partners LLC in 2010.
He is part of the technology group, covering semiconductors with a focus on analog, connectivity and processor semiconductors.
He has been recognized for his work by The Wall Street Journal’s “Best on the Street” Analyst Survey.
Earlier, he was a senior analyst and managing director at Piper Jaffray.
He began his career as an analyst at Robertson Stephens. He received a degree in international relations from Franklin University in Switzerland. He also received an M.A. degree in international policy studies from the Middlebury Institute of International Studies in California.
“I think the good thing about what’s been happening — you could call it a good thing — because demand has outstripped supply for so long, pricing has gone up a lot, probably the most I’ve ever seen. I’ve been covering the industry for 23 years.
And now that prices obviously are this high, that causes demand to trail off. And I think that is something that you’re seeing basically with the global economy anyway.
So with all this inflation, you’re really starting to see demand deteriorate, because prices are so high. And I would say the same thing is happening on the semiconductor side.
We started already seeing things like PCs and smartphones slowing down and those are obviously more tied to consumer spending. With that slowdown, supply is starting to free up somewhat based on the demand level that’s out there…
I think with the pandemic, those markets had a bit of a resurgence, when we had things like work from home. All of a sudden, everybody bought more PCs and more smartphones. But I would say that that was probably a very temporary phenomenon, driven by the pandemic.
If you look at it longer term, I think the markets that are perhaps more interesting for semiconductor companies would be automotive.
There’s obviously a lot of electronic content growth happening in the automotive market. I would say in broadband — and broadband would basically cover various different subsegments all the way from hyperscale infrastructure to 5G to better Wi-Fi. And then, on the industrial side, there’s also a lot of interesting subsectors that are seeing a lot of innovation, including the medical end market, robotics.
And then obviously, there’s this term AI, artificial intelligence, which can also be sort of an umbrella for a lot of different subsegments within those end markets.”
The semiconductor sector manufacturing is mostly in Taiwan, but there is an “in-sourcing” trend to bring manufacturing back to the USA.
“Keep in mind that most design companies, the companies that design these very compelling chips, they are U.S.-based companies. But they don’t manufacture the chips.
The chips are manufactured primarily in Taiwan, and to a certain extent in China, where a lot of the wafer manufacturing happens. And that’s basically a very natural outsourcing that the U.S. has been doing for the last 30 years, not just in semiconductors, but the U.S. has been outsourcing manufacturing everywhere, not just in semiconductors but in other parts of technology and other parts of industrial manufacturing and so on.
Now that semiconductors have become so important, I do believe that the U.S. would like to see some of that manufacturing happen in a growing way in basically what we’d call insourcing.
But keep in mind that that’s going to take a while. Establishing a whole new manufacturing hub for the semiconductor industry is something that can happen over five to 10 years. Maybe this is year one.
But it’s certainly going to take a while before the U.S. is back to being dominant when it comes to semiconductor manufacturing, even though today, they still dominate what we call the design of the chips.”
The large cap stock picks from semiconductor sector specialist Svanberg:
“…in large cap, there are two companies that I really like right now. One is a company called Marvell (NASDAQ:MRVL), and they are a leader in communications or data infrastructure.
Whether it’s things like 5G or hyperscale data centers, they basically have very high exposure there and are leading the way in developing next-generation data infrastructure.
When we go back and think about things like AI, the only way AI is going to happen is if we get this robust data infrastructure that Marvell is applying with their semiconductors. So that’s one company.
The other company is an analog company called Analog Devices (NASDAQ:ADI). And they are a very strong company in a few end markets. But the industrial market is probably their biggest end market.
It’s about half of their revenues. And there, they are benefiting from some of these other end markets that I talked about — robotics, factory automation, medical. So they’re a leader there.
When I recommend stocks to my investors, I am much more focused on things like enterprise and infrastructure as opposed to consumer, because I do believe that consumer was artificially strong during the pandemic because of the things that we just talked about before. And now obviously, that’s behind us.
Not only that, but with all the inflation that’s happening, I do believe that consumer-related semiconductors are going to slow down the most.”
The bottom may be in for semiconductor sector stocks:
“I would say, when it comes to valuation, instead of looking at things like p/es and EV-to-sales ratios, you can look more at balance sheet metrics to try and find sort of a floor.
So things like dividend yields, free cash flow yields, even things like price-to-net cash per share or price-to-tangible book value tend to be important metrics to use to try and identify sort of a bottom.
And I think if you use some of those metrics, we’re not quite there yet for the broader group, although there are a few stocks that are getting close.
So, for instance, I mentioned Silicon Labs earlier. So that stock is now trading at around four times net cash per share, which I would actually classify as sort of a floor in the stock price.”
Get the complete interview with Tore Svanberg on his current view on the semiconductor sector and his top stock picks, only in the Wall Street Transcript.
Tore Svanberg, Semiconductor Sector Analyst & Managing Director
Stifel Financial Corp.
email: tsvanberg@stifel.com
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