1 Bullish Trend in the Semiconductor Industry

After the earthquake in Japan, the semiconductor market was at a standstill, thanks to supply shortages from facilities that were directly affected. A slowdown in the growth rate of chip markets worldwide was something that perhaps everyone expected.

In June, Gartner confirmed those worries in a report in which it lowered its chip-market growth forecast for 2011 to 5.1%. The market-research firm, though, appeared quite bullish with its views on niche areas such as automotive chips.

Slowdown, but with a bright side
Gartner blamed the slowdown on the tsunami that shook Japan and the havoc it wreaked on the global chip-supply chain for goods ranging for tires to chips. In its forecast, however, the firm noted that niche markets should still experience strong growth through 2015, particularly those for chips with automotive applications. The market for chips in the automotive industry is indeed a niche segment and is also highly dependent on the movement of the automotive sector as a whole. But research firm Markets and Markets forecasts the automotive-chip market to grow by 12% by 2014.

Chipmakers in the business of cars
There are a few big companies to cling to as investors here. Chipmakers such as Intel (Nasdaq: INTC  ) are already operating in the automotive business with their Atom processors. The Atom forms a part of Intel's In-Car-Infotainment, or IVI, system that lets users access entertainment, navigation, communication, and other services.

Another chipmaker with big stakes in the automotive market is STMicroelectronics (NYSE: STM  ) , which manufactures chips capable of optimizing a car's power consumption and reducing the load on its battery. STMicroelectronics is also involved in enhancing entertainment features in automobiles -- clearly an area where chipmakers are going to make big gains in the future.

Texas Instruments (NYSE: TXN  ) is a key player in the automotive market for semiconductors. With applications in areas such as battery management, automotive infotainment, and control systems, among many others, TI is deep in the game.

In the field of memory solutions with automotive applications, Micron (Nasdaq: MU  ) has several products to meet the demand of more sophisticated circuitry in cars.

These companies are already the biggies in the business with semiconductor solutions for industrial sectors other than automotive. But the opportunity is also rife for relatively newer players in the market.

New opportunity
Freescale Semiconductor
(NYSE: FSL  ) recently announced the rollout of microcontrollers for cars that it claims will enhance a vehicle's motor-powered capabilities. This chip is being marketed as one that can render a vehicle "smarter" without the added costs that are usually associated with such an operation.

The chip, called the MagniV, will help reduce production costs by lessening the number of chips required and increasing performance at the same time. If this product catches on in the market, there are plenty of opportunities for widespread application and for investors to take advantage.

Foolish bottom line
As car sales pick up, so, too, should the demand for "smarter" cars that are easier on consumer pocketbooks. The market is rapidly adopting automotive applications for semiconductors, as more and more carmakers use chips in their designs to increase efficiency and performance. Foolish investors should take note.

Fool contributor Arunava De owns no shares of the companies mentioned in this article. The Motley Fool owns shares of Texas Instruments and Intel and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


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