Semiconductors form the basis of virtually all other technology-based devices. The industry therefore drives, enables and indicates the technological progress of an economy.
Developments in the industry determine the way we work, commute, communicate, entertain ourselves and respond to our environment. The PCs we work on, the cars we drive, the phones we use, the electronic gadgets on which we watch movies, listen to music and play games, the planes we board for travel and even the weapons used for defense use semiconductor devices.
Background
The global semiconductor market has been witnessing growth in the recent times, after recovering from the declines suffered as a result of the economic recession in 2010. The industry is experiencing growth primarily due to developing end markets and new product offerings, supported by process and yield improvements.
While semiconductors are widely used in computers and consumer gadgetry, they are now increasingly being used in the automotive, storage and industrial markets and also in the Internet of Things (IoT) space.
The most significant trends for 2014 include the stabilization in the PC market, continued strong adoption of tablets and smartphones as well as automotive electronics and the emergence of the new category of wearable devices, which has boosted growth for the semiconductor industry this year.
Despite intense competition, pricing pressure slowing down growth of the semiconductor market, it is expected that the above-mentioned markets will drive growth in the coming years.
Due to these factors most top executives in the semiconductor industry are bullish about the growth prospects in 2015. According to World Semiconductor Trade Statistics (WSTS) and SEMI, the semiconductor market is expected to grow in 2015 assuming a further recovery in the global economy.
The semiconductor industry has been one of the top performing industries in 2014. Market research firm IHS recently announced its preliminary revenue forecast for 2014. It reveals that the industry is on track to grow 9.4% to $353.2 billion this year, which will be the highest growth since 2010.
Looking back at the last 12 months, we have shortlisted three semiconductors stocks that have performed well:
Flash memory storage vendor Micron Technology, Inc. (MU), a Zacks Rank #1 (Strong Buy) stock, has generated a strong 52-week return of around 66.8%. The company has a market cap of $38.1 billion and a long-term expected earnings growth rate of 11.2%.
The stock has delivered positive earnings surprises in the last four quarters with an average beat of 32.4%. Moreover, over the last 60 days, four estimates for fiscal 2014 were raised, pushing the Zacks Consensus Estimate up by 2 cents to $3.73.
Also, Micron reported modest fourth-quarter fiscal 2014 results. While the top line surpassed the Zacks Consensus Estimate, the bottom line matched the same. The results were primarily driven by improving market conditions as well as an encouraging operating performance.
Going forward, the acquisitions of Elpida and Rexchip (now known as Micron Memory Japan, Inc. and Micron Memory Taiwan Co., Ltd., respectively) will benefit Micron’s share in the memory market.
NVIDIA Corp. (NVDA) is a worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU, carrying a Zacks Rank #2 (Buy). The company should benefit from the increased adoption of its Tegra K1 processor which should act as a catalyst, going forward.
The optimism surrounding the stock’s future performance can be attributed to the higher adoption of its Tegra processors. Recently, Honda Motor Co., Ltd. (HMC) announced that it is set to launch an in-dash Infotainment System powered by NVIDIA’s Tegra mobile processor.
NVIDIA has generated a return of 28.7% over the last 52 weeks. The company has a long-term expected earnings growth rate of 10.3%. It has delivered positive earnings surprises in the last four quarters with an average surprise of 34.22%.
NVIDIA also delivered better-than-expected third-quarter fiscal 2015 results, with both the top line and the bottom line beating the Zacks Consensus Estimate. The results were aided by increase in the sale of auto infotainment systems, mobile devices and SHIELD tablets.
Intel Corp (INTC), with a Zacks Rank #3 (Hold), is a dominant player in the server and desktop PC business and announces new products at regular intervals. This helps it to maintain its lead. With the PC market stabilizing and servers remaining very strong, its growing position at new form factors (notebooks, 2-in-1s, tablets), new innovative products such as the Grantley platform and progress at the 14nm process are all indicators of its future growth.
It has generated a strong 52-week return of around 43.8%. The stock has delivered three positive earnings surprises in the last four quarters with an average beat of 2.02%.
Moreover, it reported strong third-quarter 2014 results with both the top and bottom lines beating the Zacks Consensus Estimate.
Moving Forward
Although past performances do not guarantee similar results in the ensuing year, the underlying drivers remain strong, indicating that these stocks will continue their growth momentum in 2015.
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