CHICAGO, Sept. 14, 2011 /PRNewswire/ -- Today, Zacks Equity Research discusses the Semiconductors, including Analog Devices (NYSE: ADI), ON Semiconductor (Nasdaq: ONNN), Linear Technologies (Nasdaq: LLTC), Intersil Corp (Nasdaq: ISIL) and Maxim Integrated Products (Nasdaq: MXIM).
A synopsis of today's Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/60708/Semiconductor+Stock+Outlook+-+Sept.+2011
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. Others would be Qualcomm Samsung and Texas Instruments. As such, we remain relatively positive about these companies in 2011.
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 other growth initiatives 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 (NYSE: ADI) and ON Semiconductor (Nasdaq: ONNN). Also, while some companies, such as Linear Technologies (Nasdaq: LLTC), Intersil Corp (Nasdaq: ISIL) and Maxim Integrated Products (Nasdaq: MXIM) will have mixed performances given their varied dependence on the auto market, they are, for the most part, highly diversified, high-margin businesses. We believe these companies will generate moderate growth in 2011, representing good defensive plays as the computing market performance falls below expectations.
We believe that the good fortune enjoyed by equipment suppliers in 2010 will not be sustained in 2011. All the companies here had been severely impacted by the recession in 2009, as foundries, memory and logic makers decided to cut capex. This made for easier comparisons in 2010, so most equipment makers saw triple-digit growth.
Growth in 2011 was expected to be driven by the memory segment, which was first impacted by the crisis in Japan and then by slowing demand for computing devices and sagging consumer confidence. Therefore, results are likely to come in weaker than earlier projections by SEMI and Gartner.
We have therefore turned a bit cautious about companies like Applied Materials, KLA-Tencor and Novellus Systems, as well as test equipment providers, such as Teradyne and Agilent.
We started the year with a positive feeling about foundries, but have turned more cautious following the Japan crisis and ebbing consumer confidence. The weakness in the PC market has made matters worse. In fact Taiwan Semiconductor was quick to lower its expectations immediately after the Japan quake. We also continue to believe that investors should treat other foundries, such as United Microelectronics, and Semiconductor Manufacturing International with caution.
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