For Immediate Release
Chicago, IL – January 20, 2015 – Today, Zacks Equity Research discusses the Semiconductors, including Intel Corp (INTC-Free Report), ARM Holdings (ARMH-Free Report), STMicroelectronics (STM-Free Report), Advanced Micro Devices (AMD-Free Report) and Broadcom (BRCM-Free Report).
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.
Considering the broad application of semiconductor devices, end markets have a significant impact on the industry:
Very significant among these is the emerging Internet of Things (IoT) market, which has grown on the back of cloud storage and the growing interconnectedness of things. IDC estimates that the market will grow at a 7.9% CAGR from 2013 to 2020. Prime beneficiaries in the semiconductor industry are likely to be Intel Corp (INTC-Free Report), ARM Holdings (ARMH-Free Report) and STMicroelectronics (STM-Free Report).
The most important traditional markets that have been converging to a certain extent over the past few years are computing and consumer. Of these, PC and notebook growth has been contained by the advent of tablets, but this is less of a factor in developed markets today. So upgrades in these markets will lead to some growth, offsetting the tablet pressure in developing markets and boosting semiconductor sales.
Intel is the prime beneficiary here, although others will benefit to varying degrees. Intel is also the prime beneficiary of the strength on the cloud/data center/storage/networking side, but ARM and Advanced Micro Devices (AMD-Free Report) are expected to find niches.
Important drivers here include the need for denser, lower-cost and more secure data centers and networks, and more intelligent network control, leading to the growth of software defined networking (SDN). Spending on smart grids and intelligent metering applications is expected to see particularly strong growth (19% CAGR through 2016 according to IC Insights).
Tablets, phones and other mobile devices primarily run on ARM designs that are licensed by companies like Broadcom (BRCM-Free Report), AMD and Samsung to make semiconductor devices. But consumer also includes many other items, such as 3D printers, health and fitness devices, smart watches, Ultra HD television displays and smart thermostats that will see the strongest growth this year (108%), albeit off a small base (CEA estimates).
Smartphone revenue (the single largest driver of CE sales) will grow 5% while tablets will see a 1% decline. But both smartphones and tablet units will grow, meaning greater chip consumption.
Wireless infrastructure builds (3G, 4G LTE) are driving the communications market. Increasing data volumes and connectivity issues (network congestion, power reliability, privacy and security) drive semiconductor sales.
Another market with good prospects is automotive, where safety, infotainment, navigation and fuel efficiency requirements continue to drive demand for semiconductors. Growth in industrial applications is related to automation in the manufacturing process and largely tied to GDP growth, so this is less of a driver today.
Medical is something of a niche market, so it has a limited impact on overall semiconductor sales. The previous cycle had many players diversifying into these slower-growing but less volatile markets. This has resulted in a large number of slower-growing players within the industry that generally continue to generate decent cash flows.
Other secular growth markets include aerospace and defense that are, however, dependent on government decisions and policies.
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