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Semiconductor Companies: Where Are They In The Chip Cycle?

The semiconductor industry is notoriously cyclical. As such, semiconductor companies are subject to the ups and downs of regular chip cycles tied to the law of supply and demand.




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When conditions are favorable, chipmakers have trouble keeping up with demand. But when supply exceeds demand — either through overproduction or a pullback in end markets — prices fall. In turn, so do chip manufacturing levels.

Investor’s Business Daily divides semiconductor companies into three groups: chip manufacturers, fabless chip companies and chip-equipment makers.

Chip manufacturers own their fabrication (chipmaking) plants, while fabless chip companies hire contract manufacturers to make the chips they design. Chip-equipment vendors supply the gear and materials used to produce semiconductor products.

Is The Semiconductor Industry Growing?

Semiconductor industry sales turned south in late 2018, starting with memory chips. The downturn soon spread to other chip markets amid softening sales of smartphones, PCs and other products.

In 2019, the global semiconductor industry suffered its worst year in almost two decades. Semiconductor revenue fell 12% to $412 billion.

The semiconductor industry returned to growth in 2020 despite disruptions from the Covid-19 pandemic, according to World Semiconductor Trade Statistics. Chip sales rose 6.8% to $440 billion in 2020, the group said. It sees semiconductor sales rising 10.9% to $488 billion in 2021.

The fastest-growing categories of semiconductors last year were logic, sensor and memory chips. Sales of logic chips rose 11.1%, followed by sensors at 10.7% and memory at 10.4%.

Semiconductor Companies Report First-Quarter Results

The first-quarter earnings season was largely positive for the semiconductor industry. But chip shortages tied to capacity constraints at semiconductor foundries limited the upside for fabless chipmakers. Some analysts have expressed concern that the current shortage situation could cause customers to double order and build too much inventory.

Many top semiconductor companies delivered beat-and-raise March-quarter reports. They included Advanced Micro Devices (AMD), Analog Devices (ADI), Microchip Technology (MCHP), Qorvo (QRVO), Qualcomm (QCOM) and Texas Instruments (TXN).

Other chipmakers beat first-quarter targets, but disappointed with their guidance. They included Intel (INTC) and Taiwan Semiconductor Manufacturing (TSM).

Semiconductor equipment makers in general also delivered rosy reports as chipmakers ramp up spending on new capacity. Applied Materials (AMAT), ASML (ASML), KLA (KLAC), Lam Research (LRCX) and Teradyne (TER) were among the chip-gear firms posting beat-and-raise reports.

Largest Semiconductor Companies

Chip stocks rose in early 2021 amid the semiconductor industry turnaround. But a tech stock sell-off starting in mid-April has pulled the sector down.

IBD’s Electronics-Semiconductor Manufacturing group currently ranks No. 154 out of 197 industry groups that IBD tracks. Three months ago, it ranked No. 36. The group includes 35 semiconductor companies. The largest chipmakers by market cap are Taiwan Semiconductor, Intel and Texas Instruments, in descending order.

IBD’s Electronics-Semiconductor Fabless group ranks No. 173. However, three months ago, it was No. 93. The group includes 30 stocks, topped by Nvidia (NVDA), Broadcom (AVGO), Qualcomm and AMD.

IBD’s Electronics-Semiconductor Equipment group now ranks No. 29. Three months ago, it was in the No. 32 position. It includes 31 stocks, led by ASML, Applied Materials and Lam Research.

Why Are Semiconductors So Important?

Semiconductors are important to the world because they power technologies that enrich the lives of consumers and make businesses and other enterprises run smarter, faster and more efficiently.

They provide the ingredient technologies for personal computers, tablets, smartphones and other gadgets. Semiconductors run communications networks and the internet. They are adding smarts to televisions, home appliances, automobiles and other devices.

Semiconductor chips also underpin such massive emerging trends as cloud computing, 5G wireless networks and artificial intelligence.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor companies.

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