3 Must-Have Semiconductor Companies
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The global semiconductor industry will grow by 6.4% to $322.30 billion this year, compared to $303.02 billion last year. The key driver for this growth is the increasing demand for silicon. Therefore, being optimistic about industry growth, many companies are using innovative and efficient technology to increase their market share. Let’s analyze three companies that recently launched new products and are using advanced technology to boost their revenue.
Two major segments will accelerate earnings
Applied Materials (NASDAQ: AMAT) will reduce its spending by $25 million per quarter this year in its solar segment due to the stagnant market for solar products. The company is planning to shift this reduced amount in product development into its wafer fabrication equipment, or WFE, segment. It has planned this shift to maximize on increasing demand for NAND technology. NAND technology is used in manufacturing within the WFE segment and is the main revenue driver of this segment. NAND is a flash memory technology which doesn’t require power to retain data. This technology is generally used in manufacturing smartphone chips. It also helps to reduce chip size, lower voltage demand and increase efficiency. The company is expecting the WFE segment to grow by 30% - 40% annually due to rising demand of smaller memory chips of 20 nanometer, or nm, from the earlier 28 nm. Attributed to rising smartphone usage, the company is expecting higher equipment sales. Applied Materials will generate overall revenue of $7.1 billion by 2014, compared to $5.5 billion in 2012.
The company's display equipment segment observed sales growth of 46% quarter-over-quarter in the second quarter of 2013. The major reason for revenue growth was the increase in usage of both touch screen smartphones and tablets. The company is planning to strengthen its market position with OLED displays. OLED tech is used in displays and are much thinner and lighter than LCD's. The total number of smartphones and tablets sold in the first three months of this year were 200 million and 35 million, respectively. Applied Materials expects that the smartphone and tablet market will achieve the targeted annual growth of 35% and 55%, respectively, this year. The company's OLEDs demand is rising in smartphones due to wider viewing angle and thinner formats. It is expected that its global distribution of OLEDs will rise from 49 million in 2010 to 271 million in 2015 at 41% CAGR.
Increased investments and dividend yield will boost investor’s confidence
KLA-Tencor Corporation's (NASDAQ: KLAC) is forecasting a revenue increase of 5% - 10% in the second half of this year, above the first half, due to its inspection services. These services are generally used by chip manufacturers to detect small electrical problems in their integrated circuits. The company renders its inspection services in various foundries. Due to rising demand of gadgets such as smartphones or tablets, memory chip production is also increasing. Also, multiple foundries are investing more in the 20 nm process technology. The 20 nm is a process used to develop integrated chips that provide higher speeds.
KLA-Tencor, is a leader in inspection in foundries and holds 80% market share. Therefore, as a result of the rise in gadget production, the company is expecting revenue growth from its inspection services. Overall, it is expecting to generate revenue of $3.8 billion by June 2014 as compared to $3.1 billion in June 2012.
The company has dividend distribution history and has been distributing since 2005. It declared its last dividend in May of this year at $0.40 per share as compared to $0.35 per share last year. The company has shown continuous increment in dividend distribution year-over-year. It is anticipating future cash flow or FCF, of approximately $723 million by June 2014 and $1.01 billion by June 2015. Therefore, as evidenced in rising FCF in coming years and the long dividend history, investors can invest with confidence for regular dividend income.
LED lighting and ceramic package will boost revenue
Cree (NASDAQ: CREE) has observed rising demand for LED lighting products. Due to this, it launched a new consumer bulb in March of this year. It reported 23% revenue growth due to this launch in the third quarter. This bulb is priced at $10--very low compared to its competitors, thereby increasing its demand. Moreover, it uses only 6 watts while producing as much light as a 40-watt incandescent. These bulbs will be available exclusively in Home Depot stores, as per the contract with Home Depot. Cree is expecting its LED lighting market share will rise to approximately 50% by 2016 from 10% at present. The company expects revenue growth of 20% - 30%, year-over-year, due to the launch of these bulbs for the coming three years.
Cree recently introduced two Xlamps, XH-G and XH-B. These are mid power LED products with ceramic base packaging. The Xlamps XH LED family is comprised of high power LEDs used in the display panels of smartphones and LCDs, as well as in indoor and outdoor lighting. Earlier, these XLamps had plastic packaging. The new ceramic packaging will help manufacturers to use fewer LED chips for the same output. Also, ceramic packaged LED products are more heat resistant and perform for longer periods of time under high temperatures, producing the same output. XLamp XH-G and XH-B are cost effective, more efficient, and have a longer lifetime. It is expected that these new Xlamps will replace fluorescent lighting in troffers and panel lights in the coming years.
Cree is one of the major LED manufacturers to offer ceramic packaging. With these initiatives, the company’s revenue is expected to rise to $1.3 billion this year, compared to $1.1 billion in 2012.
Cree will gain top line momentum with the launch of its new $10 consumer bulb and the introduction ceramic packaging for Xlamps.
NAND technology in the WFE segment and the rising demand of OLED touch panels in the display segment will boost Applied Material’s revenue.
KLA-Tencor Corporation’s new investments in 20 nm and memory chips will generate higher revenue. Also, regular dividends will motivate investors’ interest in the stock.
Therefore, a buy is recommended for these stocks.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!