Summary of Conference Call on US Semiconductors Industry Overview - The focus is on the semiconductor industry, particularly diversified and analog chipmakers, as they prepare for Q2 earnings reports - The analysis includes a recovery cycle from a sales and valuation perspective relative to the pre-COVID-19 trendline from CY19 to CY26E Key Companies Discussed - **Analog Devices (ADI)** - **Texas Instruments (TXN)** - **Microchip Technology (MCHP)** - **NXP Semiconductors (NXPI)** - **ON Semiconductor (ON)** - **Allegro MicroSystems (ALGM)** Core Insights and Arguments 1. **Recovery Cycle and Valuation**: - Industrial semiconductors (ADI, TXN, MCHP) are within 10% of theoretical upside returns, with ADI showing strong free cash flow (FCF) performance [1] - Auto semiconductors (NXPI, ON) are considered the most attractive based on return-to-trendline and valuation perspectives [1] - Price objectives (PO) for NXPI raised to $270 from $250 based on a 23x CY26E PE, highlighting strong auto recovery leverage and unique product-cycle drivers [1] - POs for ADI raised to $275 from $260, ON to $70 from $60, TXN to $218 from $210, and MCHP to $75 from $70 [1] 2. **Sales Growth Expectations**: - Aggregate sales for the top 9 diversified vendors expected to grow 6.9% QoQ in Q2 ($21.9 billion) and 6.4% QoQ in Q3 ($23.3 billion) [2] - The six analog stocks in coverage are up an average of 21% YTD, trading at 46x/28x consensus CY25/26 PE, nearly 30% above historical multiples [2] 3. **Under-shipment Analysis**: - Trendline analysis indicates diversified coverage is under-shipping demand significantly, especially in auto semiconductors, with ON, NXPI, and ALGM potentially modeling sales 20%-30% below trend for CY26 [3] - Industrial semiconductors (TXN, ADI) may be only 6%-11% below trend due to recovery advancements [3] 4. **Market Dynamics**: - Light Vehicle Production (LVP) forecasts for CY25 revised up by ~2% to 89.9 million, but CY26 global LVP revised down to -0.4% YoY [4] - Global Purchasing Managers' Index (PMI) is mixed but shows improvement in the EU YTD [4] 5. **Investment Sentiment**: - Positive trends in key performance indicators (KPIs) such as rising bookings and growing backlogs indicate a cyclical recovery is underway [10] - Concerns remain regarding the impact of tariffs and whether the positive trends will continue into Q4 [2][10] Additional Important Insights - The semiconductor industry is experiencing a broad-based upturn in industrial sales, with specific companies like MCHP signaling that the worst may be over for those impacted by downturns [10] - The analysis suggests that while industrial semiconductors are closer to being priced in, auto semiconductors appear undervalued relative to potential earnings per share (EPS) power [15] - The report emphasizes the importance of understanding both product category and end market exposure to accurately assess demand and shipment levels [35] This summary encapsulates the key points from the conference call regarding the semiconductor industry, focusing on recovery trends, company valuations, and market dynamics.