2023-05-13 03:21:51 ET
Summary
- INDI is a semiconductor company that designs and develops semiconductors for the automotive, industrial, and IoT markets.
- Its diversity acts as a hedge against risk as well as steering revenue growth.
- Given its solid fundamentals, I am bullish on the stock, but investors should monitor the possible risks.
Investment Thesis
indie Semiconductor (INDI) is a semiconductor company that designs and develops semiconductors for the automotive, industrial, and IoT markets. It has a strong track record of innovation and is committed to delivering high-quality products to its customers.
Its wide range of products includes sensor goods, wireless connectivity solutions, power management ICs, microcontrollers, and more. As a result, the business has established a presence across many industries and diversified its income sources. I am bullish on this stock because of the promising outlook for the sector and the company's 120 GHz Radar Transceiver.
Products And Revenue Streams
INDI's product lineup is formidable, and the company enjoys a commanding position in several rapidly expanding markets. With the advent of electric vehicles, the automotive sector is undergoing a radical upheaval, and their microcontroller and sensor solutions are ideally adapted to this new era. The increasing prevalence of IoT devices also increases the significance of their wireless connectivity solutions. This market is expected to expand rapidly during the next few years.
Its product line serves numerous markets, lowering the company's risk of concentration in any one sector. In my opinion, this is a crucial aspect of lowering market uncertainty. The automobile sector is the company's primary source of income. More than 80% of its income comes from its two largest product lines, automotive semiconductors, and software solutions. The company's various revenue streams are summarized below, broken down by segment and region.
Optimistic Market
The semiconductors industry segment has a bright fundamental outlook for the next twelve months. Growth is expected to continue due to rising demand in areas like the automotive industry and the Internet of Things (IoT).
According to a study performed in the fourth quarter of 2020 with 156 senior executives from global semiconductor businesses, 79% expect an increase in profitability for the sector as a whole in 2021, with 73% planning to boost capital investment and 71% planning to spend more on research and development.
The stronger-than-predicted recovery in demand primarily reflects the fact that consumers appear well-positioned to spend at this time, leading to unprecedented supply restrictions in the last 20 years. In particular, the auto industry was unprepared for the pandemic's effects because demand was already weak before the crisis hit, and companies had to "eat" their excess inventory during the recession because plants were closed.
As demand increased again, businesses everywhere rushed to place new orders. However, these customers were put on the back burner as demand increased in other end industries, such as data centers/notebooks and automobiles, which had not traditionally been a primary source of growth for chipmakers. Because of these limitations, the Chinese and American governments are trying to strengthen domestic supply chain management and national security capabilities. After a 7% increase in 2020, the industry may grow by as much as 15% the next year and another 6% the year after that. New server cycles, which kicked up in the second quarter, should help keep cloud and enterprise investments afloat.
Bossing The Market Through Innovation?
INDI launched the first commercially available on-chip integrated antenna 120 GHz IQ radar front-end [RFE] transceiver. The TRX120067 eliminates the need for external antennas, which greatly simplifies application development and meets the requirements of future automotive radar systems for high-resolution, small-form-factor, low-power consumption sensing.
Long-range radar is used for safety and convenience features, including automatic emergency braking [AEB], automated parking, and adaptive cruise control [ACC] at frequencies between 76 GHz and 81 GHz. Radar, which uses frequencies from 120 GHz to 140 GHz to detect vital signs like heartbeat and respiration, is becoming more critical for in-cabin Driver and Occupant Monitoring Systems [DMS/OMS] as vehicle OEMs strive to improve sensing resolution. These higher, license-free frequencies also enable antenna-on-chip techniques that simplify PCB design, minimize sensor form factor, and reduce cost. These are crucial for DMS/OMS applications where external antennas impose industrial design limitations unacceptable to automotive manufacturers.
In-cabin sensing technologies are expected to rapidly expand and eventually become crucial in boosting overall safety as international vehicle safety assessment programs like the European New Car Assessment Programme (Euro NCAP) mandate or propose driver and occupant monitoring. Therefore, S&P Global Mobility predicts that the semiconductor market opportunity for driver and occupant monitoring will increase from $64 million in 2022 to $507 million in 2029, indicating a 34% CAGR throughout this period. In-cabin solutions for high-resolution sensing applications will increasingly incorporate radar sensing at 120 GHz and higher.
Financials MRQ Contextualized Post IPO: Getting Better And Better
INDI's performance in the fourth quarter was above and beyond in revenue and gross margin. Q1 2023 marks the eighth consecutive quarter in which they have exceeded or at least met its revenue and gross margin projections following its IPO. The company's first-quarter of 2023 sales of $40.5 million was up 84% year over year and 22% sequentially, surpassing both the company's own projections and the market's expectations. The 52.2 percent year-over-year increase in non-GAAP gross margin is also above market forecasts.
To set the stage for this act. The company reported a gross margin of 35.4% on quarterly revenue of $6.7 million when it announced its IPO in the fourth quarter of 2020. Despite the difficult supply chain climate, they have multiplied their sales by about five in the last two years while increasing their gross margin by about 1,700 points.
Risks
Investing in INDI carries risks similar to those of any other investment. The company competes with several larger, more established firms in a highly competitive market. GSI Technology, Accolade Technology, Nexperia, and Nuvoton Technology Israel are just a few of its main rivals . This may hinder the company's capacity to expand its customer base and increase its bottom line.
In addition, the automobile industry is crucial to the company's bottom line. A considerable impact on financial performance is possible in the event of a downturn in the auto industry.
Conclusion
The company is a frontrunner in emerging semiconductor industries like IoT, AVs, and industrial automation. Its outstanding revenue growth and diverse sources of income make it a desirable investment despite the fact that it is still a young business and faces stiff competition. Given the data in this analysis, I am bullish on the stock and rate the company a buy to investors seeking to diversify their portfolios in this industry.
For further details see:
indie Semiconductor: Impressive Revenue Growth Post IPO Caps Future Optimism