Prolonged global supply chain disruptions due to the ongoing Russian-Ukrainian conflict and COVID-19 lockdowns in China worsened the global chip supply shortage this year. However, with substantial government investment and increased production capacity around the world, semiconductor sales have increased. 23% year over year during the first fiscal quarter ended in March.
This growing demand and the increase government and business investments to improve chip production and impressive breakthroughs in chip manufacturing process are expected to boost the industry growth in the long run. Investor interest in this space is evident in the SPDR S&P Semiconductor ETFs (XSD) Returns of 8% over the past month versus SPDR S&P 500 Trust ETFs (TO SPY) marginal decline. The global semiconductor market is expected to grow at a pace 9.2% CAGR to $893.10 billion by 2029.
Intel Company (INTC) and Analog Devices, Inc. (ADI) are two prominent players in the global semiconductor industry. INTC designs, manufactures and sells computer products and technologies that provide networking, data storage and communication platforms. It also provides IoT products, computer vision, machine learning-based sensing, data analytics, location, mapping and driving policy technology. ADI designs, manufactures, and markets a portfolio of solutions that leverage high-performance analog, mixed, and digital signal processing technology, including integrated circuits, algorithms, software, and subsystems for markets in industry, automotive, consumer and communications.
INTC is a winner with gains of 7% over the past week against ADI’s returns of 3.2%. But which of these actions is a better choice now? Let’s find out.
Click here to view our Semiconductor Industry Report for 2022
On May 19, 2022, INTC released an open source tool named SYCLomatic, which helps developers port CUDA code to SYCL and C++ to speed up cross-architecture programming for heterogeneous architectures. Using the Apache 2.0 license with the LLVM exception, the SYCLomatic project hosted on GitHub provides a community for developers to contribute and provide feedback to open heterogeneous development on CPUs, GPUs, and FPGAs. This will help INTC advance migration capabilities to produce more SYCL-based applications and simplify development, reducing the time and cost of ongoing code maintenance.
On March 31, 2022, ADI’s Wireless Battery Management System (wBMS) became the first automotive system to earn the new ISO/SAE 21434 certification, the highest standard in battery engineering management. automotive cybersecurity. By considering CAL 4 classification requirements throughout product development, this system proactively identifies any component, application programming interface (API), or software function that could be vulnerable to a cyberattack. This system certification is key to building trust across the entire electrification ecosystem to support EV adoption and help reduce emissions.
Recent financial results
INTC’s non-GAAP net revenue for its fiscal 2022 first quarter ended April 2, 2022 decreased 1.2% year-on-year to $18.35 billion. The company’s non-GAAP gross profit was $9.75 billion, down 10.8% from the prior year period. Its non-GAAP operating profit was $4.24 billion, down 35% from the year-ago period. While its non-GAAP net income fell 34.7% year-over-year to $3.59 billion, its adjusted EPS fell 35.1% to $0.87. As of April 2, 2022, the company had $6.22 billion in cash and cash equivalents.
For its fiscal 2022 second quarter ended April 30, 2022, ADI’s revenue increased 78.9% year-over-year to $2.97 billion. The company’s adjusted gross profit was $2.21 billion, showing an 87.3% year-over-year improvement. Its adjusted operating profit was $1.50 billion, an increase of 115.5% over the prior year period. ADI’s adjusted net income was $1.26 billion, up 119.9% from the same period last year. Its adjusted EPS came in at $2.40, indicating a 55.8% year-over-year improvement. As of April 30, 2022, the company had $1.74 billion in cash and cash equivalents.
Past and expected financial performance
Over the past three years, INTC’s net income and EPS have grown at CAGRs of 6.2% and 10.8%, respectively.
INTC’s EPS is expected to decrease 35.6% year-on-year in fiscal 2022, ending December 31, 2022, but increase 2.3% in fiscal 2023. Its revenue is expected to grow 0.9% year-over-year in fiscal 2022 and 3.2% in fiscal 2023. Analysts expect the company’s EPS to grow at a rate of 3. 3% per year for the next five years.
Over the past three years, ADI’s net income has increased at a CAGR of 2.3% and its EPS has declined at a CAGR of 5.8%.
Analysts expect ADI’s EPS to grow 43.7% year-over-year in fiscal 2022, ending October 31, 2022, and 8.4% in fiscal 2023 Its revenue is expected to grow 61.6% in fiscal 2022 and 5.9% in fiscal 2023. Analysts expect the company’s EPS to grow at a rate of 18.7 % per year over the next five years.
In terms of non-GAAP forward P/E, ADI is currently trading at 18.05x, 41.4% higher than INTC’s 12.77x. In terms of EV/Forward Sales, INTC’s 2.37x compares to ADI’s 7.76x.
INTC’s last 12 months revenue is eight times that of ADI. INTC is also more profitable, with a net profit margin of 31.7% compared to 16.8% for ADI.
Additionally, the INTC DEERROA and ROTC of 26.9%, 7.4%, and 9.4% versus ADIs of 6.7%, 4.2%, and 5%, respectively.
Although INTC has an overall rating of B, which translates to Buy in our own POWR Rankings system, ADI has an overall rating of C, equivalent to Neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
INTC has an A rating for value, in line with its lower-than-industry valuation ratios. INTC’s EV to Futures Sales ratio of 2.37x is 17.4% below the industry average of 2.87x. ADI’s D rating for value reflects its overvaluation. ADI’s EV/Forward Sales ratio of 7.76x is 170.5% above the industry average of 2.87x.
INTC was rated B in terms of quality, in line with its industry-leading profitability ratios. INTC’s 26.9% 12-month ROE is 244.7% higher than the industry average of 7.8%. ADI’s C rating for quality reflects its lower profit margins than the industry. ADI’s 6.7% 12-month ROE is 14.6% below the industry average of 7.8%.
Among 95 B-rated stocks Semiconductor and wireless chip industry, INTC is ranked #14, while ADI is ranked #60.
Beyond what we stated above, our POWR rating system ranked INTC and ADI for sentiment, stability and growth. Get All INTC Ratings here. Also, Click here to see additional POWR ratings for ADI.
Growing demand and increasing investment to improve chip production should help major chip makers INTC and ADI benefit now. However, a relatively lower valuation and higher profitability make INTC a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall POWR rating of Buy or Strong Buy. Click here to access top-rated stocks in the semiconductor and wireless chip industry.
INTC shares were trading at $44.64 per share on Tuesday afternoon, up $0.09 (+0.20%). Year-to-date, the INTC is down -11.97%, compared to a -12.15% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. After…