The Semiconductor Industry serves as a driver, enabler and
indicator of technological progress. As environmental issues have
become more of a concern today, semiconductor devices are being
made to reduce power consumption, reduce heat dissipation,
capture solar energy, create more efficient lighting solutions
and so forth.
Manufacturing operations have shifted to Asia over the past
decade, but since innovation remains largely within the country,
the sector is one of the biggest employers of labor, with a
corresponding significant impact on the overall economy. (Read:
Semiconductor ETFs in Focus on Intel Earnings
The consumer and computing markets consume two-thirds of all
semiconductors. The computing market will decline this year and
will remain in the doldrums for a couple more years. This
softness will be more than made up by growth in mobile devices,
particularly tablets and smartphones. Semiconductors for mobile
devices have their own set of unique challenges: greater
functionality and better experience at higher speeds and
consuming less power. They also have to be priced lower.
Additionally, a lot of the growth in the next few years will come
from price-sensitive emerging markets, which is likely to
According to the CEA, consumer electronics driving sales this
year include tablets, smartphones, notebooks, network-enabled
TVs, digital imaging and set top boxes. However other areas will
remain soft, so the overall market will not grow more than 2.7%
this year. (Read:
Time to buy this top ranked Semiconductor ETF
The move to cloud computing and growing data consumption on
mobile devices is leading to strong demand for suitable wireless
and computing networks. This is currently one of the most
important semiconductor markets. Industrial automation,
automotive, aerospace and defense are also consuming a growing
number of semiconductors, but growth prospects in these markets
are currently not as good.
Semiconductor demand may be expected to pick up this year, as
most OEMs and their channel partners have been reducing
inventories and cutting utilization. PC and microprocessor
inventory reduction has been significant, but should pick up this
year, driven by new product launches. Handset inventory declines
were significant exiting 2012, driven by strong demand. Analog,
discrete and storage inventories were all pretty lean, according
to research firm iSuppli. (Read:
Tech ETFs in Focus on Record Apple iPhone
INTEL CORP (INTC): Free Stock Analysis Report
PWRSH-DYN SEMI (PSI): ETF Research Reports
MKT VEC-SEMICON (SMH): ETF Research Reports
ISHARS-PHLX SEM (SOXX): ETF Research Reports
SPDR-SP SEMICON (XSD): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report
Forecast for 2013
According to World Semiconductor Trade Statistics (WSTS) data,
there should be worldwide semiconductor sales growth of 4.5% in
2013, following the 3.2% decline in 2012. Gartner and IC Insights
are close to this, with projections at 4.5% and 6.0%,
respectively. iSuppli and IDC are more optimistic, predicting
sales growth of 8.2% and 6.9%, respectively. (See all Technology
Playing the Sector Through ETFs
The ongoing transition across multiple served markets makes it
difficult to select winning semiconductor stocks. However,
companies in charge of core manufacturing generally gain whenever
there is market growth. As a result, it could be easier to play
the sector through Exchange Traded Funds (ETFs) that are more
heavily weighted to these big players.
For those interested in taking a non-equity look at
semiconductors, we have highlighted a few ETFs tracking the
industry below, any of which could be interesting picks:
Van Eck Market Vectors Semiconductor ETF (SMH)
The Van Eck Market Vectors Semiconductor ETF was started in 1955
to replicate the price and yield performance of the Market
Vectors U.S. Listed Semiconductor 25 Index.
This Index tracks the overall performance of 25 of the largest
U.S. listed, publicly-traded semiconductor companies. Some of the
largest holdings include
Taiwan Semiconductor Manufacturing Company
(TXN). Its expense ratio is 0.35% and its dividend yields 1.73%.
Net assets on Aug 31 2013 were $279.11 million.
iShares PHLX Semiconductor ETF (SOXX)
Founded in 2001, the iShares PHLX Semiconductor ETF is based on
U.S.-listed semiconductor stocks represented by the PHLX
Semiconductor Sector Index.
The top holdings in the ETF include Texas Instruments, Intel
(AMAT). Its expense ratio is 0.48% and its dividend yields
1.21%.Net assets on Oct 7, 2013 were $228.4 million.
SPDR S&P Semiconductor ETF (XSD)
Founded in 2006, the SPDR S&P Semiconductor ETF tracks the
S&P Semiconductor Select Industry Index. This is an
equal-weighted ETF comprising 49 stocks with an expense ratio of
0.35% and a dividend yield of 0.65%.
Powershares Dynamic Semiconductors ETF (PSI)
The Powershares Dynamic Semiconductors ETF was started in 2005 to
track the performance of the Dynamic Semiconductors Intellidex
Index. At least 90% of its assets are invested in stocks that
comprise the Index. Its top holdings include Micron Technology,
Applied Materials and KLA-Tencor. The Fund and the Index
are rebalanced and reconstituted quarterly in February,
May, August and November. Its expense ratio is 0.63% and the
dividend yields 1.06%.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>