Semiconductor Industry Expect Double Digit Growth in US
Tuesday, March 15, 2022 11:08 AM

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Semiconductors provide the enabling technology for thousands of products and services we use every day, such as PCs, cell phones, medical devices, appliances, automobiles, TVs, and digital cameras. In fact, they play a key role in a wide assortment of technologies and industries ranging from medical imaging to retailing to precision agriculture. The revenues of U.S.-based chip companies account for nearly half of global semiconductor sales and more than three-quarters of U.S.-owned chip manufacturing capacity is located in the United States. On January 31, 2011, the Semiconductor Industry Association (SIA) said that worldwide semiconductor sales for 2010 reached a record $298.3 billion, an increase of 31.8 percent from the $226.3 billion recorded in 2009.

Worldwide semiconductor sales in December amounted to $25.2 billion, a modest decline of 3.0 percent from the month prior in line with historical seasonality, and 12.2 percent higher than December 2009. The fourth quarter sales of $75.5 billion represent a 4.0 percent decline from the immediate prior quarter, and a 12.2 percent increase over the same period in 2009.

The US share of global chip production capacity has eroded, particularly with regard to the latest, state-of-the-art, leading edge manufacturing facilities overseas. During the financial crisis of 2008, the level of new investments in US declined below the levels of a decade ago. Insufficient research funding, workforce challenges, and the incentives foreign nations offered to attract investment, caused the dip in the US chip industry.

In 2010, all major semiconductor product categories showed double-digit growth year-over-year. As semiconductors have been America’s top export over the last five years, it is important to note that the Asia Pacific region represents 54 percent of the total worldwide semiconductor market. The Americas semiconductor market only accounts for 18 percent of the world market.

For FY 2011, the Semiconductor Industry Association (SIA) forecasts moderate single digit growth for the industry sector as a whole. The forecast can be encouraging, given the continued impact of the economic downturn.

The semiconductor industry is trading at a P/E ratio of 18.80 with total market capitalization of 11,207.8 billion. The industry’s return on equity (ROE) is 14.80 percent, while its dividend yield is at 2.73 percent. Its P/B ratio is 3.28 and its long-term debt to equity is 12.49. The gross margin of the industry is 51.75 percent.

The semiconductor industry comprises of various companies, with Samsung Electronics being the biggest semiconductor company in the world. In this report, I have kept the focus on the US semiconductor industry; hence, the companies that I will be discussing are Intel and Texas Instruments. For FY 2010, Intel Corporation (Nasdaq: INTC) reported total revenues of $43.62 billion, with earnings of $11.46 billion, or $2.01 per share, compared to earnings of $4.36 billion, or $0.77 per share. It is the largest semiconductor company in the US with total market capitalization of $119.64 billion and a gross margin of 65.31 percent. The gross margin is higher than the industry’s, representing sound health and prospects of the company. In reality, for semiconductor industry, if the gross margin is above 40 percent, it is considered a good investment stock for the investors. The P/E ratio of the company is 10.38 lower than the industry’s average. INTC last traded at $20.59 on Friday. Based on the industry’s and company’s growth prospects, I set a one year target price of $26.

On the other hand, Texas Instruments Inc. (NYSE: TXN) reported revenues of $13.96 billion for FY 2010, compared to $10.42 billion in FY 2009. The net income for FY 2010 was $3.22 billion, or $2.62 per share, compared to net income of $1.47 billion, or $1.15 in the previous year. Texas Instruments has a market capitalization of $42.84 billion, with gross margin of 63.65 percent, which is marginally higher than the industry’s average and is well above the 40 percent mark, representing a good investment. The P/E ratio of TXN is 13.13, lower than industry’s P/E, representing high growth opportunity for the company, and a possible increase in its stock value. Based on the analysis, I have set a one year target price of $ $38 on the company’s stock. TXN last traded at $34.09 on Friday.

After analyzing the semiconductor industry, I think that the industry have a lot of potential to grow further, but considering the low life-cycle of products, the companies need to focus more towards research and development (R&D), and keep on coming up with new and improved products in order to survive in this fast changing technology industry. I expect a double digit growth of the semiconductor industry in the US, based on the efforts of the SIA to increase the chip production as it is critical to the US economic strength.


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