At the CES trade show in Las Vegas last week, a slew of vendors were offering systems and components for autonomous driving, and its less sexy but more practical cousin, ADAS, or advanced driver-assistance systems. Qualcomm (ticker: QCOM), Nvidia (NVDA) and Intel (INTC) were all talking up their ADAS systems, but the near-term effect on their earnings is likely to be minimal at best.
That said, there are other ways to play the trend. They don’t require the near-term arrival of driverless cars to work for investors.
On Wednesday, BofA Securities analyst Vivek Arya wrote in a research note that the combination of ADAS and electric cars is a “key megatrend,” predicting that auto-related sales of semiconductors can grow better than 25% a year as the dollar value of the chips in the average car doubles by 2022.
Arya said the sector got some near-term good news recently when China—50% of the electric-vehicle market—said it will not meaningfully cut subsidies for EVs in July, despite expectations to the contrary.
Electric vehicles and ADAS together could be an underappreciated source of growth in chip sales going forward, along with the cloud and 5G telecommunication, Arya said. He singled out two companies as plays on electric vehicles and ADAS: NXP Semiconductors (NXPI) and ON Semiconductor (ON).
NXP is the largest automotive-chip provider, accounting for about 11% of the market, with parts for entertainment systems and in-vehicle networking, as well as radar for ADAS systems and battery-management systems for electric vehicles. NXP generates about 48% of its revenue from the auto industry, giving it more exposure than any chip maker except Japan’s Renesas Electronics (RNECF)
ON Semi, he says, ranks seventh in terms of sales of automotive-related chips, with about 4% of the market, and is “highly levered” to gains in both electric vehicles and auto image sensors for ADAS applications. The company has $50 to $100 worth of chips in a car with a combustion engine, $500 in an electric vehicle, and could hit $1,800 for an autonomous EV, he said. Automotive applications account for slightly more than 30% of ON Semi’s revenues.
On Wednesday, ON Semi closed down 2.9%, to $24.88; NXP slipped 0.2% to $132.50.
barrons.com / balkantimes.press
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