Rising Onshoring Costs Will Erode Semiconductor Margins Despite Advances

Key Takeaways

• Increased supply chain complexity, shifting manufacturing bases, and geopolitical tensions threaten Parade's margins, revenue stability, and earnings predictability.
  
• Market shifts towards integrated solutions and wireless standards, alongside fierce competition, risk making Parade's core products obsolete and compressing profit margins.
  
• Expanding into high-growth markets with advanced interface technologies and strategic acquisitions, Parade leverages strong OEM relationships and product innovation to drive sustained revenue and margin growth.

Catalysts

Operates as a fabless semiconductor company in South Korea, China, Taiwan, Japan, and internationally.

• Accelerating onshoring and supply chain diversification by Parade's customers, with a shift towards manufacturing outside Asia, is likely to significantly increase production costs and operating complexity for Parade, ultimately squeezing net margins in the medium to long term as the sector demands more geographically diversified supply options.
  
• Rising adoption of integrated system-on-chip solutions across consumer and enterprise devices threatens to structurally reduce demand for Parade's discrete interface ICs, posing a secular risk to revenue growth as large device manufacturers consolidate supplier lists and minimize component counts.
  
• Geopolitical instability and intensifying regulatory scrutiny between the US, China, and Taiwan elevate the risk of sudden market access barriers, potential export restrictions, and mandatory compliance costs, directly undermining Parade's revenue stability and driving unpredictable swings in earnings.
  
• Intensifying competition, particularly from larger semiconductor companies with greater R&D resources, places Parade's design wins and pricing power at risk, leading to gross margin compression and limiting the company's ability to keep pace with technology shifts-even as its customer concentration in PCs and displays exposes it further to single-market downturns.
  
• The risk of interface IC commoditization and rapid shifts to new wireless or integrated standards could render Parade's existing product lines obsolete much faster than anticipated, accelerating ASP declines and eroding both topline revenue and long-term profit sustainability.

Parade Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Parade Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Parade Technologies's revenue will grow by 6.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.2% today to 23.5% in 3 years time.
• The bearish analysts expect earnings to reach NT$4.8 billion (and earnings per share of NT$59.96) by about July 2028, up from NT$2.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.0x on those 2028 earnings, down from 17.5x today. This future PE is lower than the current PE for the TW Semiconductor industry at 24.8x.
• Analysts expect the number of shares outstanding to decline by 3.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.59%, as per the Simply Wall St company report.

Parade Technologies Future Earnings Per Share Growth

Risks

• Ongoing proliferation of high-speed, high-resolution displays and the accelerating adoption of AI PCs, content creation laptops, and next-generation devices continue to fuel strong demand for Parade's advanced interface and signal integrity ICs, supporting potential long-term revenue and earnings growth.
  
• The company's acquisition of Spectra7 brings unique silicon germanium high-speed technology, proven IP, experienced engineers, and exposure to high-growth data center and AI infrastructure markets, expanding Parade's platform for margin expansion and new revenue sources.
  
• Parade is consistently increasing design wins with Tier 1 global OEMs and expects robust customer stickiness due to leading performance, integrated solutions, and comprehensive USB4, PCIe, and DisplayPort offerings, suggesting recurring and possibly growing revenue streams in coming years.
  
• Recent breakthroughs in advanced 6-nanometer and 12-nanometer ASIC projects, along with proprietary high-speed IP, position Parade at the forefront of next-generation interface technologies, supporting higher-margin product introductions and long-term earnings growth.
  
• Management maintains rigorous cost controls and stable operating expenses despite uncertainty, and gross margins have remained in the upper 42-46 percent range, suggesting sustained net margin health even during periods of macroeconomic or industry volatility.

Valuation

• The assumed bearish price target for Parade Technologies is NT$440.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Parade Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$866.0, and the most bearish reporting a price target of just NT$440.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be NT$20.3 billion, earnings will come to NT$4.8 billion, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 7.6%.
• Given the current share price of NT$604.0, the bearish analyst price target of NT$440.0 is 37.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.