The Future Looks Bright For ARM, Qualcomm, Semtech And Linear Technology
Manufacturing digital ICs is expensive as it requires
state-of-the-art technology and processes.
As digital products are cheaper, cost recovery is more difficult. This has led to specialisation in the industry and a greater contribution from Asian manufacturers. Having said that, a significant portion of the intellectual property remains with U.S. companies, according to Zacks Investment Research.
One of the primary beneficiaries of the growth in mobile phones, tablets and the like is ARM Holdings, with its power-efficient, low-performance chip architecture that dominates the growing mobile phone and tablet markets. With new versions of ARM chips coming to market, it is likely that the chips will gradually spread to the server segment as well, although this is not expected to take off in 2012.
Zacks says that other companies which may pursue this route are Qualcomm, Samsung and Texas Instruments, all of which are big semiconductor manufacturers that use ARM architecture. Zacks is relatively positive this will happen with Samsung and Qualcomm sometime in 2012.
The firm also believes that given their new product ramps and focus on the data centre segment, this will occur with Intel and AMD. Zacks does however say it is a little cautious about Intel's growth initiatives in the mobile sector; execution will be key to delivering on its plans. But as Intel's market position, cash balance, technology lead and management strategy and execution are all good, this should not hinder it too much in expanding in this sector.
AMD is also one to watch, as its management has been delivering on its promises. What's more, the company is seeing some real success in its graphics business, which should complement initiatives targeted at rationalising its debt, increasing focus on R&D and achieving a lower-cost model.
The analogue and mixed-signal market is dependent on innovation. As a result, these products generate higher margins than digital products. They are also more customised and have longer life cycles.
Most of the companies mentioned are seeing stronger demand right now in analogue and mixed signal products, although there are some issues based on the lingering effects of the Thailand floods and general economic sluggishness. Zacks sees Semtech Corp as a player in this market, given its recent deal wins, product cycles, order rebound and position on the communications front.
The market research firm also expects companies like Linear Technology, which has a focus on the automotive end market, to do well this year.
