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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Lam Research Corporation | NASDAQ:LRCX | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-2.52 | -0.24% | 1,035.98 | 1,036.00 | 1,037.99 | 1,042.07 | 1,023.05 | 1,025.00 | 545,200 | 21:09:43 |
While the CEA did not provide details for all products, it did mention that TVs would be relatively flat this year with growth if any expected to come from emerging markets. Approximately 50% of TVs sold in the U.S. will be connected compared to 12% in 2011.
Consumer confidence in the U.S. economy touched bottom in the second half of 2010, although trends indicate that the recovery is slow and very gradual. Despite the much lower unemployment rate, consumers remained decidedly cautious in both the 2010 and 2011 holiday seasons. An offsetting factor has been the individual buying habits that continue to favor electronic gadgets as holiday gifts. The trend may be expected to continue, which is a positive for semiconductors serving the market.
Other Markets
Communications infrastructure spending is not likely to exceed 3-4% this year, as carriers cut investments despite growing traffic. While technology upgrades should continue, carrier spending in Europe will be impacted by fears of a recession, while in the U.S., growth could taper off following several years of strong spending. Chinese players are likely to keep the pressure on the pricing side.
Automotive chipmakers should see good growth over the next few years. While the recession and natural disaster in Japan have severely impacted these players in the last few years, there are signs of growth in both the U.S. and Europe. However, we may see some changes in days to come, since nearly a fifth of vehicle production has moved to China and we may expect more to follow.
Perhaps the biggest driver of growth for automotive chip manufacturers is the increasing electronic content per vehicle, driven by the need for fuel efficiency, entertainment and automated navigation. With electronic stability control becoming mandatory in the U.S., there should be sustained demand for enabling devices.
Additionally, microcontrollers for engine functions and transmission controls are becoming more popular, since they increase the efficiency of automobiles and make them more eco-friendly. Infineon Technologies, Renesas Electronics, Freescale Semiconductor and Texas Instruments are the major beneficiaries here. Linear Technologies has also increased its exposure to the automotive segment, so it should gain from the growth in the market.
Medical Devices is an upcoming area and adoption of semiconductors in this market may be expected to accelerate over time.
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) continues to strengthen, as passenger and cargo traffic continue to increase.
The outlook for defense spending, on the other hand, is not as bright. The focus on terrorist activity remains, so spending on intelligence systems and basic weaponry is stronger. A longer-term driver for semiconductor manufacturers is the growing importance of electronic weaponry. So semiconductor manufacturers serving these markets continue to see mixed results, depending on the customers served.
Near-Term Outlook
We see continued inventory rebalancing over the next few months, which will negatively impact suppliers to the computing market. Additionally, cannibalization of traditional computing devices should continue through the year. Therefore, this end-market will have a significant negative impact on the industry. Consumer devices, such as TVs will be another area of softness.
However, other consumer devices, such as tablets and smartphones, will consume a large number of ICs. The automotive market will be a positive force this year.
Memory manufacturers should do well again this year, although it will continue to be a difficult year for DRAM (currently in oversupply). Logic should do well.
Ever Smaller & More Powerful
The demand for greater functionality in smaller and more power efficient gadgets is leading to greater integration within the semiconductor device. This is leading to increased demand for the system-on-a-chip (SoC), which is a single device incorporating a microprocessor, digital signal processor or graphics core, as well as memory and logic.
Major Players
The major players in the industry may be broadly categorized into chipmakers (OEMs-whether fabless or otherwise), equipment and material suppliers, and foundries.
Chip-makers
According to preliminary estimates from IHS iSuppli, Intel Corp (INTC) and Samsung remained the top two semiconductor suppliers in 2011, while Texas Instruments (TXN) overtook Toshiba Corp. to attain the number three position (helped by the National Semiconductor acquisition).
Renesas remained at number 5, followed by Qualcomm (QCOM), which moved up from the ninth position in 2010. STMicroelectronics (STM) remained at number 7, with Hynix, Micron Technologies (MU) and Broadcom (BRCM) in the eighth, ninth and tenth positions. Applied Micro Devices (AMD) crept up from number 12 to number 11.
Equipment Makers
Gartner estimates that semiconductor equipment sales by the top ten suppliers increased 2% in 2010, following a 38% decline in 2009, accounting for 63.4% of total equipment sales. The overall equipment market is estimated to have increased 143% to around $41 billion in 2010. Automated test equipment (ATE) was the strongest segment (up 149%), wafer fab equipment (WFE) was close behind with a growth rate of 145%, while packaging assembly equipment (PAE) was third, having grown 127%.
The very strong growth may be traced to a particularly weak 2009, when the recession impacted demand for semiconductors and capital spending was minimized. In this environment also, Applied Materials (AMAT) easily maintained its number one position, followed by ASML Holdings N.V. (ASML) and Tokyo Electron Ltd in that order. Lam Research Corp (LRCX), KLA-Tencor (KLAC) Dainippon, Teradyne, Inc (TER), ASM International (ASMI) Nikon and Novellus Systems, Inc. (NVLS) were the others in the top 10.
The 2011 estimates are not available yet. Exposure to the solar market and acquisitions will account for most of the changes in the top 10.
Foundries
The Foundry segment has undergone significant changes over the past few years and the top five positions have changed again, according to research from IC Insights. Although Taiwan Semiconductor Manufacturing Company (TSM) remains the leader by far, followed by Taiwan-based United Microelectronics Corp (UMC), GlobalFoundries has now taken the third position in the pureplay segment, pushing the Chinese foundry Semiconductor Manufacturing International Corp (SMI) to the fourth position.
Also, specialty foundry Tower Semiconductor (TSEM) has jumped to the fifth position. A few clear leaders are emerging in the foundry segment – Taiwan Semiconductor at the trailing edge, GlobalFoundries at the leading edge and Tower Semiconductor in the specialty category (analog). Additionally, Intel and Texas Instruments’ foundries make them two strong contenders with leading edge capabilities.
OPPORTUNITIES
Manufacturing digital ICs is expensive, as it requires state-of-the-art technology and processes. On the other hand, digital products are cheaper, so cost recovery is more difficult. This has led to specialization in the industry and a greater contribution from Asian manufacturers. However, a significant portion of the intellectual property remains with the domestic companies.
One of the primary beneficiaries of the growth in mobile phones, tablets and the like is ARM Holdings (ARMH), with its power-efficient low-performance chip architecture that dominates the growing mobile phone and tablet markets. With new versions of ARM chips coming to market, it is likely that the chips will gradually spread to the server segment as well (probably not a 2012 phenomenon).
Others would be Qualcomm, Samsung and Texas Instruments, all of which are big semiconductor manufacturers that also use ARM architecture. As such, we remain relatively positive about these companies in 2012.
We are also optimistic about Intel and AMD, given their focus on the data center segment. Although we are a wee bit cautious on Intel’s growth initiatives in mobile and believe that execution will be key to delivering on its plans. The company’s market position, cash balance, technology lead, and management strategy and execution are positives in our opinion.
AMD is also worth watching, as management has been delivering on its promises. Moreover, the company is seeing some real success in its graphics business, which should complement initiatives targeted at rationalizing its debt, increasing focus on R&D and operation of a lower-cost model.
The analog and mixed-signal market is dependent on innovation. Consequently, these products generate higher margins than digital products. They are also more customized and have longer life cycles. These advantages are not lost on U.S. players, so the number of companies entering the market is on the rise.
Our favorites in this area include Texas Instruments, Analog Devices (ADI) and ON Semiconductor (ONNN). Also, while some companies, such as Linear Technologies (LLTC), Semtech Corp (SMTC), Intersil Corp (ISIL) and Maxim Integrated Products (MXIM) will have mixed performances given their varied dependence on the auto market, they are, for the most part, highly diversified, high-margin businesses.
Linear and Maxim have also reduced their dependence on the computing market, which we see as a positive in the near term. We believe these companies will generate moderate growth in 2012.
WEAKNESSES
We believe that 2012 will be a transitional year, with inventory rebalancing and adjustment. Given the uncertainties in demand, we think that semiconductor manufacturers will curtail investment in capacity although technology purchases could continue. DRAM inventory remains in excess although NAND and NOR are slightly better off.
In this environment, we would avoid investment in equipment companies, such as Applied Materials, KLA-Tencor, Lam Research, etc. We particularly discourage investment in Applied Materials at this time because of its exposure to solar, where there is significant oversupply and resultant pricing pressure.
The foundry segment will also have a moderate year (at best). The Thailand flooding and resultant weakness in the PC market and soft consumer spending increases risks in our opinion. We therefore continue to believe that investors should treat foundries, such as Taiwan Semiconductor, United Microelectronics, and Semiconductor Manufacturing International with caution.
We also remain cautious about companies with relatively weak financials, such as Exar Corp (EXAR) and FormFactor (FORM). For instance, FORM continues to burn cash despite the relatively strong demand for its specialized probe cards. It also has significant customer and market concentration that increase execution risks.
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