The semiconductor sector is showing signs of stabilization and potential upside, according to analysts at UBS, who cited improving inventory levels and firmer pricing trends in their latest industry report.
In the ninth edition of the UBS Enhanced Semis Distributor Tracker, the analysts pointed to reassuring pricing trends and continued inventory digestion as key signs of health across the semiconductor distribution channel.
“Pricing was flat to up a low single-digit percentage across all subcategories, likely due to mix and the pockets of weakness we had identified through the beginning of the year for some analog appear to be easing, with pricing now down low single digits year-over-year,” they wrote.
This stabilization is seen as an encouraging reversal from previous quarters marked by softness, particularly in analog components.
One of the strongest signals of recovery is the sustained reduction in microcontroller unit (MCU) inventories, a segment that had previously been a bottleneck.
“The digestion in MCU inventory since February has continued,” the analysts wrote, noting a further 5% decline month-on-month in June following similar drops in previous months.
“We find pricing and inventory trends reassuring, especially the continued digestion of MCU inventories which had remained stubbornly elevated,” they wrote.
UBS also pointed to improving metrics across other major categories. Sensor inventories fell by 5%, diodes were down 4%, and transistors saw a 3% decrease in inventory levels, while prices for bipolar transistors were up 17% year-on-year.
“Pricing was stable to slightly up across all of the product categories, up 1% month-over-month on average and up 13% year-over-year, likely due to mix, in our view,” they wrote.
Meanwhile, prices for MCUs stayed flat, while capacitors, diodes, wireless/RF components, and sensors saw 2% to 3% price increases. Inventories of multi-layer ceramic capacitors (MLCCs), a common component in electronics, are improving, down 5% from May and 21% below last year’s peak.
Company data adds to the positive trend, the analysts added. Overall pricing rose 3% in June, up from 1% in May. STMicroelectronics, a major chipmaker, posted a 4% price increase, while Infineon’s price declines have moderated, both seen by UBS as encouraging given earlier pricing pressure.
Looking ahead, UBS continues to favor names like Texas Instruments Inc (NASDAQ:TXN), Renesas, and Infineon Technologies (ETR:IFX, OTC:INFNNY), but now sees improving prospects for STMicroelectronics (NYSE:STM) and other industrial MCU-exposed players.
