The Zacks Semiconductors - Radio Frequency industry is suffering from a rise in commodity prices, raging inflation, higher interest rates and global macroeconomic uncertainties. However, continued higher spending on the deployment of 5G networking, gaining from the rapid proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS) and Augmented Reality/Virtual Reality devices, is a catalyst. The democratization of 5G smartphones is another tailwind for the industry players. This has bolstered the demand for radio-frequency semiconductor solutions, enhancing the prospects of prominent industry players like Akoustis Technologies AKTS and RF Industries RFIL.
The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide Radio Frequency solutions, Front-end Modules, low-noise amplifiers, diodes, multi-chip modules, optical components, surface acoustic wave, bulk acoustic wave technology-based antenna-plexers, and film bulk acoustic resonator filters to enable smartphone devices to function more efficiently in congested RF spectrum. They serve a wide array of industries with their solutions, finding ample applications in 5G and smartphone equipment, aerospace and defense, optical networks, cellular base stations, automotive, and smart home applications. Most of these companies utilize robust wafer fabrication technologies as well as ZigBee, Bluetooth Low Energy, Thread, silicon germanium and Gallium Nitride technologies to stay ahead of the competition.
3 Trends Influencing the Prospects of the Semiconductors - RF Industry
Accelerated Deployment of 5G is a Tailwind: The rapid implementation of 5G networking infrastructure and the robust adoption of cloud computing applications hold promise for the wireless communication market. The coronavirus crisis-induced work-from-home wave has necessitated the need for higher bandwidth and triggered LTE advancements, which are expected to bolster the demand for RF power amplifiers. Increasing RF content in the latest 5G smartphones is a key catalyst. Moreover, demand recovery in the smartphone market is likely to aid the prospects of major industry players. Shipments of 5G smartphones are projected to account for more than 60% of the global volume in 2022, per IDC estimates.
Innovation is Opening Up Business Avenues: The rapid proliferation of IoT, wearables, drones, VR/AR devices, autonomous cars, and ADAS is expected to drive the demand for RF semiconductor products beyond smartphone devices, favoring industry prospects. Notably, RF Semiconductors are setting the pace for technology modernization by consequently digitizing aspects like connectivity, healthcare, transport and defense. Diversified utilization of RF Semiconductor products bodes well for the industry players. Moreover, the evolution of semiconductor manufacturing processes from 10 nanometers (nm) to 7 nm and even 5 nm and 3 nm technology is anticipated to bolster the industry prospects. Further, the roll-out of bands and band combinations has led to considerable design challenges for OEM smartphone manufacturers. The industry participants are looking to address these challenges with a robust range of antenna-plexer portfolios utilizing the BAW technology.
Supply-Chain and Higher Commodity Cost to Hinder Prospects: The industry players are reeling under the impacts of supply-chain constraints, as well as the negative impacts of the ongoing Russia-Ukraine war. Volatility in prices of certain commodities like copper doesn’t bode well for industry participants. The lingering impacts of COVID-induced lockdowns in China increase uncertainty. Markedly, the industry players generate a significant portion of their revenues from China.
Zacks Industry Rank Indicates Dim Near-Term Prospects
The Zacks Semiconductors - Radio Frequency Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #232, which places it at the bottom 8% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2022 have moved down 28.2% since Nov 31, 2021.
Despite the gloomy outlook, there are a couple of stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 & Sector
The Zacks Semiconductors - Radio Frequency Industry has underperformed the S&P 500 and its sector over the past year.
The industry has declined 43.8% over this period against the S&P 500’s dip of 18% and the broader sector’s drop of 31.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing the Semiconductors - Radio Frequency stocks, the industry is currently trading at 11.07X, lower than the S&P 500’s 17.6X and the sector’s 23.44X.
Over the past five years, the industry has traded as high as 23.62X and as low as 8.17X, with the median being 13.60X, as the charts below show.
Forward 12-Month P/E Ratio
2 Radio Frequency Stocks to Keep a Close Eye on
RF Industries: This Zacks Rank #3 (Hold) company is riding on strong demand for its RF coaxial cable and connector product as well as Optiflex hybrid fiber solutions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growing demand for wireless carrier infrastructure builds for 5G is a tailwind for RF Industries. Increased spending from carriers deploying 5G bodes well for RFIL.
RF Industries’ shares have lost 32.7% year to date.
The Zacks Consensus Estimate for RF Industries’ fiscal 2023 bottom line is pegged at 55 cents per share, unchanged over the past month.
Price and Consensus: RFIL
Akoustis: This Zacks Rank #3 company is benefiting from an expanding WiFi customer base. Akoustis is riding on continued design wins in WiFi and 5G Mobile.
Shares of Akoustis have declined 47% year to date.
The Zacks Consensus Estimate for AKTS’ fiscal 2023 loss has widened from 91 cents to 95 cents per share over the past 30 days.
Price and Consensus: AKTS
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
RF Industries, Ltd. (RFIL) : Free Stock Analysis Report
Akoustis Technologies, Inc. (AKTS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research