Skip to main content

Another industry in transformation?

It is well publicized that the financial industry is undergoing cataclysmic changes in terms of survival of companies, industry leadership, etc. Is there is another industry that is undergoing a similar transformation?

iSuppli, the market research firm, thinks so. They recently released a report indicating that major changes have been taking place in the semiconductor industry. Granted that the changes have been quieter and less dramatic.

Margins decrease --

They begin by saying that over time semiconductor industry profitably has shrunk. They point to a downtrend in margins and provide the following graph:

09-17-08 Semiconductor Industry Operating ProfitThe surprising quote from the article, written byDerek Lidow, president and chief executive officer of iSuppli, is as follows:
"The semiconductor industry now is less profitable as a percentage of revenue than the notoriously low-margin PC business... the long-term trend indicates that the semiconductor industry—which historically has been good at capturing profits in the electronics value chain—seems to have lost its money-making touch."

An industry transformed --

The report goes on to describe how, in the view of iSuppli, the semiconductor industry has changed. Previously, there were three categories of companies: the dominant companies whose growth outperformed the market, the middle tier consisting of most suppliers and the lower tier of low performers.

Now, according to iSuppli, we see the result of years of predatory take-overs to secure market share combined with failures of the weakest players. What is left is essentially a two tier system consisting of a group of top-performers and another group that includes pretty much everybody else. The result of the changes in the industry, as Mr. Lidow of iSuppli describes them, can be quantified as follows:
"The number of competitors achieving growth of more than 100 percent during the period of 2004 to 2007 declined to nine, down from 19 during the period of 2001 to 2004. This shows semiconductor companies can no longer break out of the pack by taking market share away from weaker rivals."
Their take is that n0w that the industry has been transformed, one of the favored ways of attaining dominance, via buying market share, is not working anymore.

The game changes --

One way to attain greater than market growth rates is to design more highly integrated chips comprising expanded functionality in system-level chips built around proprietary Intellectual Property (IP). iSuppli points to Qualcomm (QCOM), MediaTek Inc. and Linear Technology (LLTC) as companies that have successfully pursued this approach.

Another strategy is to milk established cash-cow products in the industry. Companies pursuing this approach include Microchip (MCHP), Diodes Inc. (DIOD), Microsemi (MSCC) and Rohm.

A third strategy, whose use is limited to the dominant players, is to out-spend competitors in product development and in developing manufacturing efficiency and scale. Companies who have used this approach include Samsung, Intel (INTC) and Taiwan Semiconductor Manufacturing (TSM).

With semiconductors increasingly becoming a commodity, iSuppli believes that it will soon begin to make sense for growing firms to pursue a strategy of continuous acquisitions to build a companies with great depth, large portfolios of products and the scale to deliver top quality technology with best in breed sales and marketing.

Conclusion --

iSuppli seems to be saying that the semiconductor industry is consolidating, profit margins are shrinking and there is no turning back. I'm not sure I totally agree with this analysis.

With the advent of the fab-less semiconductor company, it is easier than ever for small players to enter the industry. The history of the hi-tech industry has many examples of small companies developing unexpected, disruptive products that changed the balance of power in the industry. Granted it is harder than it used to be but I don't think that tradition is dead yet.

What do you think? Will semiconductors go the way of the PC industry?

Source: As Profit Dwindles, Semiconductor Market Becomes Less Forgiving

Disclosure: none

Comments

well they need to change many basic things
Web CRM said…
all the industries are in personal transformation era.

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, TradingStockAlerts.com and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at Trade-Radar.com

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …