STMicroelectronics, a Dutch-Swiss chip maker, along with many others in the industry, has seen its business boom on the back of increased demand and supply shortage.
As a result of this, STMicroelectronics (ticker: STM.France), which designs, develops, and makes semiconductors, went ahead and posted fourth-quarter revenue ahead of guidance in January. The company’s stock rallied as a result of the good news by roughly 6% in the past 12 months to $37.84.
Despite the fact that the stock has dropped roughly 20% this year alone, the investment remains solid. The Geneva-based company enjoys the advantage of having a broader customer base that ranges from sectors as varied as automotive and industrial, which accounted for about 35% of 2021 sales. The company has listings in Milan and Newyork, and many of the sectors it operates in are still expanding, therefore offering a layer of protection in the diversification.
STM can also provide a certain element of predictability in terms of 2022 revenue guidance, which is expected to rise by 20% to a range between $14.8 billion and $15.3 billion because its order book for the entire year is full.
While others seemed to slow down investment in capital expenditure during the pandemic, STM continued to spend and announced in January that it would double investment in chip-making facilities to roughly $3.5 billion in 2022, an increase from $1.8 billion in 2021. This includes a new factory in Italy.
An analyst at Deutsche Bank Research, Johannes Schaller, wrote: “We retain our bullish stance on the stock…which we see in a unique position being able to deliver highly cost-efficient capacity into a tight market.” He expects that the stock could jump about 45% to €52.
This efficiency in production keeps costs down while product prices continue to rise as a result of the supply squeeze. The combination of these factors means the company is able to make healthy gross margins of 45%.
According to Aleksander Peterc, an analyst at Société Générale, the healthy margins should be able to keep the company in a fairly safe space even in the midst of increased input costs. He lifted STM’s revenue estimates to $15 billion for 2022 and $16.5 billion for 2023, expecting that reported net income would increase to $3.22 billion for 2023. He went ahead to say that STM is valued at an “unusually high discount” in comparison to its peers and historical earnings-based 12 month forward multiples.
STM employs over 48,000 employees and previously had a market value of €32.3 billion. It receives a low 12.2 times this year’s expected earnings, and while it is valued in line with its competitors, rival Broadcom (ticker: AVG) trades at 16.95 this year’s expected earnings and Analog Devices (ticker: ADI) at 19.12.
For the year ended Dec 31 2021, STM posted net sales totalling $12.7 billion, an increase from $10.2 billion the previous year. It saw net income almost double to $2 billion in 2021 from $1.1 billion. STM will post first-quarter earnings later in the month.
“In 2022, we will accelerate the execution of our strategy, continuing to deliver differentiating products to customers for smart mobility, improved power and energy management, and the IoT and 5G,” said CEO Jean-Marc Chery. “We will invest significantly to capture new opportunities and prepare for future growth, keeping our strong focus on sustainability.”
The market is set to be vibrant well into 2023, with good inventory levels, continued supply-chain issues, heightened price changes, and high order levels.