As the market for smartphones matures, growth in sales is slowing, but this does not mean sales for microchip suppliers needs to follow a similar trajectory. Increasing demand for more memory capacity, amplified radio signals and higher data speed in smartphones translates into more microchips being installed per phone. That means that chip producers should continue to enjoy elevated levels of sales growth, according to the Wall Street Journal.

That is good news for memory companies like Micron Technology Inc. (MU) and Western Digital Corp. (WDC) as well as radio frequency (RF) chipmakers like Broadcom Ltd. (AVGO), Skyworks Solutions Inc. (SWKS) and Qorvo Inc. (QRVO). Qorvo’s stock price is up more than 23% for the year as of the close of trading on Monday July 10 while the other four are all up over 30% with Broadcom up nearly 38% and Micron up more than 39%.

Strong Market Dynamics

CEO of Micron, Sanjay Mehrotra, indicated in the company’s last earnings call that dynamic random-access memory (DRAM) is expected to double even amongst low and mid-tier phones. The value of RF chips in this year’s new iPhone model is expected to average about $27 per unit, which is an increase of 30% over two years, Ed Snyder at Charter Equity told the WSJ.

The market supply and demand dynamics for both DRAM and NAND flash memory suggest that prices for these types of microchips will continue to rise this year, Macquarie Research analyst Daniel Kim told Barron’s earlier this year. (To read more, see: Micron, Let the Good Times Roll: Baird,)

Despite slowing growth for smartphone sales, which eked out a mere 2% growth last year compared to 10% growth the year before, microchip sales should continue to grow, making the companies that produce them attractive prospects for investors.

Attractive Valuations

According to Fidelity Investments, this year’s price-earnings ratio (P/E ratio) estimates for the semiconductors and semiconductor equipment industry is 19.84. Micron’s stock looks especially attractive in comparison with a trailing P/E ratio of 13.73, while Skyworks’ stands at 20.79 and the other three are negative indicating negative earnings. (To read more, see: Forget the FAANGS! These Are Tech’s Real Winners.)

Based on forward P/E ratios, earnings are expected to pick up for all five companies. Micron once again looks attractive with a 5.19 forward P/E ratio, while the forecast for Skyworks is 13.99, Western Digital is 7.52, Broadcom is 14.04 and Qorvo is 9.99. 

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