Summary
- Strong iPhone 14 pre-sales, especially in China, bode well for the company.
- According to rumors, the delivery times would have lengthened for the premium model.
- Ongoing buyback and the latest company announcement should support STM.
When we initiated to cover STMicroelectronics ( NYSE: STM ) one of our initial buy rating recaps was based on the iPhone refresh cycle with an estimated duration time of one year. Apple ( AAPL ) is STM's most important client and accounts for almost 20% of the company's total sales. We explained how this has always " been a concern within the investor community and remains one today, however, management's recent comments around 2022 indicate that demand is expected to be higher than supply". So, we were not surprised to see Bloomberg's latest news on how Apple stock price was rallying on strong pre-sales data .
The new iPhone 14 was presented last September 7 and should be available starting on September 16. According to the news, delivery times in the premium model called Pro Max will take longer than expected. Particularly important was the strong demand in the US market but above all in the Chinese one, where delivery times would have reached seven weeks and the JD.com website would have had problems managing payments due to the high traffic amount. This is a piece of positive news for the entire supply chain and more importantly for STM. At the time, when Intel ( INTC ) is forecasting lower revenue and Mobileye valuation was reduced and its IPO was postponed to 2023, STM is managing the 2022 challenges becoming more and more important for all customers.
Having listened to the recent City's Global Technology Conference , here below our main key takeaways:
- Top-managements explained that order backlog covers almost eight quarters of industrial capacity (almost two years of intake);
- Costumers inventories are in line with the historical average;
- Related to point 2), STM expects a strong rebound in the automotive sector declaring that its entire manufacturing capacity is already sold out in 2023. Whereas, the CEO emphasized that consumer electronics demand is softening. However, the 2023 target division was confirmed;
- In the second half year, managements confirm the positive price evolution and the better product mix development;
- Mass market semis price will stabilize over 2023 and will support the company's future profitability;
- Once again, during the presentation, Jean-Marc Chery STM's CEO and Lorenzo Grandi STM's CFO confirmed 2022 guidance with sales of around $16 billion and a gross margin of approximately 47%.
Conclusion and Valuation
Over the period, the company is continuously buying back shares . Looking at the details, STM currently holds in total more than 4.5 million shares which accounts for almost 0.5% of the company's total equity capital. Our internal team says no more and after the Q2 results comment, we confirm our valuation at a price target of €60 per share maintaining an outperforming rating.
Mare Evidence Lab's previous publications on semis:
- STMicroelectronics: We Reiterate Our Outperform Rating
- STMicroelectronics: Doubles Profits And Beats Expectations
- Infineon: MACRO To MICRO A Must Have In Your Portfolio
- FormFactor Vs Technoprobe: A Clear Winner
For further details see:
STMicroelectronics: Looking Ahead