67 WALL STREET, New York - May 29, 2014 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Mobile Device Consumer Demand - Enterprise Data Storage Demand - Energy Efficiency, Cloud Computing and Telecommunications - Improvement from Cyclical Bottom - Semiconductor Capital Equipment Spending - Data Growth Trends - Semiconductor Revenues and Demand - Chinese Fabless Industry Growth
Companies include: Apple Inc. (AAPL), Taiwan Semiconductor Manufactu (TSM), Semiconductor Manufacturing In (SMI), United Microelectronics Corpor (UMC), International Business Machine (IBM), Advanced Semiconductor Enginee (ASX) and many others.
In the following excerpt from the Semiconductors Report, an expert analyst from Sanford Bernstein discusses the outlook for the sector for investors:
TWST: You think that investors underestimate the importance of trailing nodes. Can you tell us what we should know about trailing nodes and which companies are best positioned to compete on trailing nodes?
Mr. Li: When we talk about trailing nodes, I am referring to 40-nano or older generations. I think this is indeed undercovered by the Wall Street, because most investors look at 28- or 20-nano node right now, and it's also the area that gets most of the research, most of the coverage from the sell side. But when you look at the revenue split from leading foundries, I cover three of them, and if you look at 2013 revenue, about 80% of their revenue actually came from trailing nodes. Even leaders like TSMC, about 70% of revenue is coming from trailing nodes; especially trailing nodes actually carry higher margin than the 28- or 20-nanometer nodes, because most of the equipment used to produce trailing nodes are either partially or fully depreciated, so trailing nodes have the burden of depreciation. The trailing nodes hence tend to have better margin than leading nodes. That is even the case for again a leading foundry like TSMC as well.
The trouble is that the end applications of trailing nodes are pretty diversified, so it's difficult to understand the end pull, the market pull on these nodes. For the advanced nodes, let's say for 20-nano, the lion's share of demand is from mobile, from either smartphone or tablets. So it's easy to do research, because you get much better market data on these applications and you can get a feel about the demand for these leading nodes. However, for trailing nodes, in general there is no key driver per se. You can have 20 or 30 different applications, and their shipments are all based on trailing nodes.
Despite these challenges, we actually published a report and looked at the history to better understand the behavior, also the competition of trailing nodes. In general, because these are mature nodes, laggards will have a better chance to compete. They will be able to catch up with the leaders in technology and gradually gain share and improve their margin in these trailing nodes. So within my space, SMIC (SMI) and UMC (UMC) actually have been gaining share away from TSMC in these trailing nodes.
TWST: 20nm is the first time that foundries adopt multiple patterning, which results in cost escalation and diminishes the economical benefit of advancing Moore's Law. Can you elaborate?
Mr. Li: That is actually a major milestone in the supply chain in the history of semiconductors in my view...
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.