CHICAGO, Feb. 3, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Semiconductors, including ARM Holdings (Nasdaq: ARMH-Free Report), Qualcomm (Nasdaq: QCOM-Free Report), Texas Instruments (Nasdaq: TXN-Free Report) and Intel (Nasdaq: INTC-Free Report).
As environmental issues have become more of a concern today, semiconductor devices are being made to reduce power consumption, reduce heat dissipation, capture solar energy, create more efficient lighting solutions and so forth.
The past decade has seen big changes in the industry, with most players streamlining operations and transferring more routine production to low-cost locations. This led to the development of the Asian market, where most memory production and backend operations have shifted.
However, since innovation remains largely within the country, the sector is one of the biggest employers of labor, with a corresponding significant impact on the overall economy.
End Market Perspective
The consumer and computing markets remain the most important, but because of the gradual convergence of functionalities, it is growing increasingly difficult to identify which devices are computing and which consumer. Semiconductors are spurring this change, facilitating the convergence.
PC market growth will be moderate in the next few years, more than made up by growth in mobile devices. A lot of the growth in the next few years will come from price-sensitive emerging markets, which is an added negative. Innovation in the mobile segment depends on the ability of semiconductors to provide greater functionality and better experience at higher speeds and by consuming less power.
ARM Holdings (Nasdaq: ARMH-Free Report) is a significant beneficiary of the trend favoring mobile computing, since its simpler processor architecture consumes less power. As a result, companies like Qualcomm (Nasdaq: QCOM-Free Report), Texas Instruments (Nasdaq: TXN-Free Report) and others have based their products on ARM cores. Intel (Nasdaq: INTC-Free Report) appears to have fallen behind in the race, but its recently-announced Bay Trail processor based on the Silvermont microarchitecture could make up for lost time.
At the same time, dumber terminals mean increasing demand for cloud services, which is pushing demand for servers and data centers and thereby helping Intel, which is the dominant player in the segment. While ARM is likely to enter this turf just like Intel is entering mobile, Intel's is very strongly positioned here.
Other than tablets, the consumer electronics market also includes gadgets like LCD TVs, Blu-ray players and smartphones.
The Consumer Electronics Association ("CEA") expects U.S. consumer electronics sales to be up 2.4% this year, following a sharp drop-off in 2013. The CEA expects global spending on technology to decline 1% this year to $1.06 trillion.
However, spending on tablets and smartphones is expected to remain strong at roughly 43% of all tech spending. Smartphone prices will take a tumble however. The new category of smartwatches will do around 1.5 million units. HD TVs, while remaining a very small percentage of total TV units, will grow from 60K units to 485K units.
The wireless infrastructure segment of the communications market has been stronger than the wireline segment in the last few years. This segment is expected to remain consistent with 2013 levels, as transition to 3G and 4G infrastructure continues. Increasing data volumes across the world and infrastructure build-outs to support these volumes and deal with connectivity issues (network congestion, power reliability, privacy and security) will continue to drive semiconductor sales.
In addition, enterprise and data center networks are undergoing a huge change because of greater demand for data storage, security and privacy (cloud computing, Internet of Things). This should generate significant demand for semiconductors over the next few years.
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