The Semiconductor Industry serves as a driver, enabler and
indicator of technological progress. Developments in the industry
determine the way we work, transport ourselves, communicate,
entertain ourselves and respond to our environment. The PCs we work
on, the cars we drive, the phones we communicate with, the
electronic gadgets on which we watch movies, listen to music and
play games on, and the planes and weapons used to transport or
protect us use semiconductor devices.
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.
The past decade has seen big changes in the industry, with most
players streamlining operations and transferring more routine
production to low-cost locations. This led to the development of
the Asian market, where most memory production and backend
operations have shifted.
However, 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.
End Market Perspective
The consumer and computing markets remain the most important, but
because of the gradual convergence of functionalities, it is
growing increasingly difficult to identify which devices are
computing and which consumer. Semiconductors are spurring this
change, facilitating the convergence.
PC market growth will be moderate in the next few years, more than
made up by growth in mobile devices. A lot of the growth in the
next few years will come from price-sensitive emerging markets,
which is an added negative. Innovation in the mobile segment
depends on the ability of semiconductors to provide greater
functionality and better experience at higher speeds and by
consuming less power.
) is a significant beneficiary of the trend favoring mobile
computing, since its simpler processor architecture consumes less
power. As a result, companies like
) and others have based their products on ARM cores.
) appears to have fallen behind in the race, but its
recently-announced Bay Trail processor based on the Silvermont
microarchitecture could make up for lost time.
At the same time, dumber terminals mean increasing demand for cloud
services, which is pushing demand for servers and data centers and
thereby helping Intel, which is the dominant player in the segment.
While ARM is likely to enter this turf just like Intel is entering
mobile, Intel's is very strongly positioned here.
Other than tablets, the consumer electronics market also includes
gadgets like LCD TVs, Blu-ray players and smartphones.
The Consumer Electronics Association ("CEA") expects U.S. consumer
electronics sales to be up 2.4% this year, following a sharp
drop-off in 2013. The CEA expects global spending on technology to
decline 1% this year to $1.06 trillion.
However, spending on tablets and smartphones is expected to
remain strong at roughly 43% of all tech spending. Smartphone
prices will take a tumble however. The new category of smartwatches
will do around 1.5 million units. HD TVs, while remaining a very
small percentage of total TV units, will grow from 60K units to
The wireless infrastructure segment of the communications market
has been stronger than the wireline segment in the last few years.
This segment is expected to remain consistent with 2013 levels, as
transition to 3G and 4G infrastructure continues. Increasing data
volumes across the world and infrastructure build-outs to support
these volumes and deal with connectivity issues (network
congestion, power reliability, privacy and security) will continue
to drive semiconductor sales.
In addition, enterprise and data center networks are undergoing a
huge change because of greater demand for data storage, security
and privacy (cloud computing, Internet of Things). This should
generate significant demand for semiconductors over the next few
New concepts like software defined networking (SDN) are based on
more intelligent network control and are therefore new markets for
semiconductors. Spending on smart grids and intelligent metering
applications is expected to see particularly strong growth (19%
CAGR through 2016 according to IC Insights).
The automotive end market has been growing in importance, as the
consumption of electronic components for safety, infotainment,
navigation and fuel efficiency continues to increase. As a result,
semiconductors serving this market should grow stronger than the
industry over the next few years.
Industrial consumption of semiconductors is linked to GDP growth,
which according to the UN economic growth forecast for 2014 is not
too exciting. The GDPs of the U.S., Western Europe and Japan are
expected to grow 2.5%, 1.5% and 1.5%, respectively.
Emerging economies like Brazil, Russia, India, China and Africa
are expected to grow 3%, 2.9%, 5%, 7.5% and 4.7%, respectively.
Medical Devices (normally included in this segment), lighting
solutions and residential construction markets are likely to be
stronger. As a result, semiconductor devices that have enabled
increased automation and efficiencies are likely to see modest
The aerospace and defense markets are considerably dependent on
government spending and policy making. The commercial aerospace
market (which lags an economic downturn or recovery) is looking up.
Production increases should be slightly positive for the
semiconductor industry this year.
Defense spending remains uncertain, although electronic weaponry,
intelligence systems and basic weaponry remain important. So
semiconductor manufacturers serving this market continue to see
mixed results, depending on the customers served.
The most significant trends for 2014 include the stabilization in
the PC market, continued strong adoption of tablets and smartphones
and the emergence of the new category of wearable devices. The
strength in these markets and continued innovation within them
should lead to strengthening demand for semiconductors through the
year. Additionally, channel inventories remain lean overall, which
means that strengthening demand will drive sales.
IC Insights estimates that a modest recovery in the PC market will
help drive a 3% increase in microprocessor sales for PC/server
embedded markets in 2014 after two years of decline. On the other
hand, cell phone application processors will grow 19% this year
with total microprocessor sales growing 9%.
DRAM supply is likely to be short of demand this year because of
its application in mobile devices like tablets and smartphones on
the one hand and the lack of investment in manufacturing facilities
on the other. This is expected to strengthen prices significantly.
NAND demand is expected to remain very strong again this year, but
considering the fire at Hynix that diverted some capacity to DRAM,
supply constraints could remain in the first half of the year. But
NAND manufacturers are gearing up for the second half when there
should be some additional capacity as well. So prices may be
expected to remain strong this year. SSD demand will also spike, as
will its supply.
iSuppli expects the standard logic market to start growing this
year and considering the slight recovery in the PC market (which
uses the most standard logic), this may be correct. Stronger
automotive and industrial sales, which while being much smaller
than the PC market, will also continue to push consumption of
standard logic components.
Forecast for 2013
According to World Semiconductor Trade Statistics (WSTS) data,
there should be positive worldwide semiconductor sales growth of
4.1% in 2014, followed by 3.4% growth in 2015. All products and
categories are expected to grow in both years, although wireless
and automotive are expected to grow the strongest and consumer and
computing relatively stable.
The major players in the industry may be categorized into
chipmakers (OEMs -- whether fabless or otherwise), equipment and
material suppliers and foundries. The market positions described
below refer to latest available data.
According to estimates from IHS iSuppli, Intel and Samsung remained
the top two semiconductor suppliers in 2012. Texas Instruments
slipped to number four, as Qualcomm jumped from the sixth position
in 2011 to the third in 2012.
Toshiba, Renesas, Hynix,
) made up the next few positions with only Hynix and Broadcom
Applied Micro Devices
) dropped to number 12, behind Sony, which advanced two positions.
The pureplay Foundry segment has undergone significant changes over
the past few years although the top five positions have not changed
much, according to research from IC Insights.
Taiwan Semiconductor Manufacturing Company
) remains the leader by far, followed by GlobalFoundries and then
United Microelectronics Corp
Semiconductor Manufacturing International Corp
) remains at number four, with specialty foundry
) in the fifth position. Additionally, Intel and Samsung are strong
players with leading edge capabilities. IC Insights says that the
pure-play foundries grew 16% in 2013 and will grow another 14% this
year to touch $41.2 billion.
Increased investment in capital equipment bodes well for equipment
suppliers this year. SEMI data shows strong positive growth across
most geographies, leading to a 23.2% increase in sales.
Gartner estimates that
) regained the number one position in 2012 driven by stronger
demand for its deposition and process control products.
), which had taken the lead in 2011 as a result of increased demand
for EUV tools moved back into the second position.
) occupied the fifth position.
The semiconductor industry is made up of 11 sub-sectors within the
Technology sector, which is one of the 16 broad Zacks sectors. The
following table seeks to explain the position of companies in the
semiconductor market in the context of the Zacks Industry Rank.
We rank the 264 industries across the 16 Zacks sectors based on the
earnings outlook and fundamental strength of the constituent
companies in each industry. To learn more visit:
About Zacks Industry Rank
The outlook for industries positioned #88 or lower is 'Positive,'
between #89 and #176 is 'Neutral' and #177 and higher is
As indicated in the table above, the first 6 semiconductor segments
are positive, the next 4 are neutral, while the last one is
So it is not surprising that the average rank of stocks is below
3.00 for most of the segments [Note: Zacks Rank #1 for individual
stocks denotes Strong Buy, #2 is Buy, #3 means Hold, #4 Sell and #5
The broader Technology sector, of which Semiconductors constitute a
part, appears to be stable. Both the revenue beat ratio of 84.2%
and earnings beat ratio of 84.2% are solid (so far). The sector
performed significantly better than the S&P 500 on both counts.
Total earnings for the sector were up 17.2% year over year,
compared to an increase of 5.9% in the third quarter of 2013. Total
revenues were up 2.6% from last year compared to a 3.2% increase in
the third quarter.
The Technology sector is expected to be up 9.7% in 2014 and 10.8%
As evident from the above discussion, companies like
) represent good investments.
There are hardly any weaknesses in the industry at present, but
investors may want to avoid companies like
) that may not be too lucrative in the near term.
ADV MICRO DEV (AMD): Free Stock Analysis Report
ARM HOLDNGS ADR (ARMH): Free Stock Analysis
ASML HOLDING NV (ASML): Free Stock Analysis
BROADCOM CORP-A (BRCM): Free Stock Analysis
SPANSION INC (CODE): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
INTL RECTIFIER (IRF): Free Stock Analysis
KLA-TENCOR CORP (KLAC): Free Stock Analysis
MICRON TECH (MU): Free Stock Analysis Report
POWER INTGRATIO (POWI): Free Stock Analysis
QUALCOMM INC (QCOM): Free Stock Analysis Report
SEMICON MFG-ADR (SMI): Free Stock Analysis
STMICROELECTRON (STM): Free Stock Analysis
SKYWORKS SOLUTN (SWKS): Free Stock Analysis
TRIQUINT SEMICO (TQNT): Free Stock Analysis
TEXAS INSTRS (TXN): Free Stock Analysis Report
To read this article on Zacks.com click here.