The Top 10 Semiconductor Stocks of 2011

It's been a miserable year for semiconductor investors. The cyclical industry is prone to swings and wild overcorrections in both positive and negative directions. Still, if you're a longtime veteran of the industry, it's been far worse: 2011 wasn't nearly as bad as late 2001, when semiconductor spending dipped more than 40% year over year. Nor was it as bad as early 2009, when year-over-year spending sank 30% from the previous year.

Overall, semiconductor sales are expected to grow 1.3% this year according to industry association WSTS. That'd mark the first time semiconductor sales surpass $300 billion annually, but it'd also represent a below-average growth rate. More importantly, it'd mean that semiconductor sales are the weakest of any technology subsector. Since technology in general underperformed other sectors this year, that's a recipe for steep losses.

And the steep losses rained down on the sector after a promising start to the year. The Philadelphia Semiconductor Index -- a rough proxy for the industry -- is off 11.9% on the year, far worse than the Nasdaq's 2.4% decline.

However, amid the carnage there were some winners in the sector. Here's a rundown of the top 10 performers in the semiconductor industry, and a brief look at why they're succeeding amid a struggling industry.

Company Name

Market Cap (Millions)

Percent Return in 2011

Silicon Motion Technology (Nasdaq: SIMO  ) $631.3 380.2%
NetLogic Microsystems $3,443.0 57.5%
CEVA $697.2 44.5%
Advanced Analogic Technologies $255.3 43.9%
ARM Holdings (Nasdaq: ARMH  ) $12,271.2 39.4%
Mellanox Technologies $1,269.9 23.3%
Intel (Nasdaq: INTC  ) $123,353.7 19.3%
Taiwan Semiconductor Manufacturing (NYSE: TSM  ) $64,559.1 16.2%
Maxim Integrated Products $7,596.2 14.1%
Spreadtrum Communications (Nasdaq: SPRD  ) $1,004.1 13.2%

Source: S&P Capital IQ. Results are adjusted for dividends.

Silicon Motion
Silicon Motion stands head and shoulders above its peers. The small chip company specializes in flash memory and mobile communications, two areas seeing outsized growth. However, many other semiconductor firms specializing in those areas were hammered in 2011. Having a growing end market alone doesn't explain the company's success.

Silicon Motion provides NAND flash controllers, rather than the commoditized raw flash memory. With innovative technology, that can be an attractive market, as evidenced by Apple's (Nasdaq: AAPL  ) reported $400 million to $500 million purchase of Anobit. Speaking of which, Apple's buy will mean that Anobit becomes a captive supplier to Apple, meaning that more business from the likes of Hynix and Micron (Nasdaq: MU  ) could be coming Silicon Motion's way.

Processors
Looking further down the list, we see both ARM Holdings and Intel. That might seem contradictory, since ARM-licensed mobile processors are seen as the major threat to Intel. However, with Intel seeing success in emerging markets and its data-center group, the semiconductor behemoth has managed to see its share price rise even as it found little traction in the mobile arena.

The king of capital-intensive
Finally, near the bottom of the list we find Taiwan Semiconductor, a company I've called "the chip stock to buy today." As jumps in semiconductor technology become prohibitively expensive and more companies go fabless to reduce their capital costs, it increasingly leaves Taiwan Semi as the 800-pound manufacturing gorilla in the industry.

One more stock to consider
If you're hoping for quick salvation from the semiconductor industry, it probably won't come in 2012. Growth is expected to clock in at about 2.6%, once again well below other areas of technology.

If you're looking for another idea from a company with far greater growth prospects, The Motley Fool has created a brand-new free report: "The Motley Fool's Top Stock for 2012." It features a company hand-selected by the Fool's chief investment officer that has a strong future ahead of it. I invite you to take a copy, free for a limited time. Get access to the report and find out the name of this legendary company.

Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of Intel and Apple and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Apple and Intel and creating bull call spread positions in Apple and 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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  • Report this Comment On December 29, 2011, at 10:52 PM, russfischer1013 wrote:

    Intel Investment Thesis

    Manufacturing Capacity

    In the 2010 fourth quarter earnings conference call, Intel management discussed a process shrink from 32nm to 22nm. They also mentioned that they have three primary fabrication centers. With a shrink to 22nm those three facilities could be reduced to two and have the same chip output. Surprisingly, the CEO announced that Intel would be going to a four fab model. This move effectively doubles the number of chips the company could produce relative to 32nm.

    What is the added capacity to be used for?

    From Paul Otellini:

    As we approach our 22-nanometer transition, we are increasing our investments in manufacturing to capture what we believe is a significant opportunity for growth. Stacy will walk you through more details in just in a moment, but in short the market opportunities for our 22-nanometer products are outstanding. As a result, we are growing from the model of three high volume leading-edge manufacturing fabs to four

    Our 22-nanometer process will be the foundation for growing PC and server segments, as well as a broad family of Atom-based SoCs, serving smartphones, tablets, smart TVs, and other embedded devices.

    Technology

    With the move to 22nm, Intel has grown the lead over the best in class competition to as much as two generations of manufacturing technology. This 22nm technology will also feature TriGate transistors that will increase the performance of the transistors while reducing power consumed dramatically. Some recent information indicates a reduction of 95% in quiescent power consumption when compared to 32nm planar transistors.

    Ultrabook

    Intel is promoting a notebook format called the “Ultrabook”. This product is a thin packaging format similar to the MacBookAir. Intel is subsidizing tooling and supply chain establishment for PC manufacturers to the extent of $300 million. The Ultrabook, in most cases, will be too thin to use a hard disc drive, so flash based solid state drives should have huge growth as this plays out over the next 2-3 years. The boot time for an Ultrabook with a SSD will be seconds, the performance will be much higher relative to a HDD PC and it will be “always connected” even when in sleep mode. The elimination of a HDD and the low power level of the new 22nm TriGate Intel processors will extend battery life substantially.

    Intel makes Solid State Drives. The Intel/Micron partnership has produced the world’s first 128Gb flash chip in the Micron/Intel joint venture fab in Singapore:

    http://seekingalpha.com/news-article/2097633-photo-release-i... The article seems to imply an eight chip stack of these chips to produce a 128GB SSD in a thumbnail size format.

    Mobile

    Many analysts give Intel a bad rap due to their lack of involvement in smart phones and tablet computers. Some even feel that embedded ARM processors represent a serious threat to Intel long term.

    The real fact is that Intel has an architecture that is very high on computational power and also higher on electrical power than these mobile devices could tolerate. Looking at this from the recent past, Intel would not call the mobile business a served market. The devices neither needed the compute power offered by intel nor could they tolerate the higher power level.

    That all changes at the 22nm Trigate node. The mobile devices need for more compute power than ARM processors can provide is growing and the latest Intel technology will meet or beat the electrical power requirements of these mobile devices.

    The bottom line is that Intel could not participate in this segment until now. They could, however, prepare for engagement in the mobile business. They have done this by building manufacturing capacity and designing low power functional blocks while waiting for their 22nm manufacturing plants.

    We can expect some interesting announcements at the upcoming Consumer Electronics Show in January.

    Infineon

    Bought Infineon’s baseband business in order to have a complete, hassle free, market proven baseband solution that can be embedded in an application processor SoC.

    FPGA

    In an unprecedented move, Intel is doing foundry work for a startup FPGA company. Intel is giving Achronix Simiconductor access to its 22nm TriGate process.

    The speculation is that the payoff for Intel is complete access to the Achronix technology for embedding with Atom processors in order to give mobile products OEM customers a level of product design flexibility not available from any other application processor vendor.

    http://online.wsj.com/article/SB1000142405274870447790457558...

    http://www.eetimes.com/electronics-news/4210263/Intel-to-fab...

    Security

    A while back Intel bought McAfee, probably not just because they like to write big checks. McAfee announced DeepSAFE at the Intel developers forum. DeepSAFE provides security near the silicon level, beneath the operating system. It is very possible that Ultrabooks shipped with the new Intel Ivy Bridge CPUs will have a final solution to the exasperating problems of malware by putting “hooks” in the chip that makes all other security software obsolete. This could be rocket fuel that launches the Ultrabook next year.

    Apple

    Apple and Samsung are locked into 30 different lawsuits in nine countries. To me it is obvious that Apple can no longer depend on Samsung as a supplier of critical component such as their “A” series of application processors.

    The scale of this business will soon approach 300 million devices between the iPod, iPad, and iPhone. The current A5 chip is 122 sq mm in size. That means that 500 chips can be produced on a 12” wafer. 300 million chips will require a leading edge manufacturing capacity of 600,000 wafers per year. That level of capacity/technology only exists at two companies in the world, Samsung and Intel. The Intel technology is two generations advanced from the Samsung process, so moving to Intel would produce a smaller A5 chip at higher speed and even lower power.

    The Citi semiconductor analyst feels this is a distinct possibility and could be made public around the end of the year. http://www.cnbc.com/id/43327072?__source=yahoo|headline|quot...

    In the latest earnings conference call, Otellini was asked if Intel is doing foundry work for anyone. His answer was that they are doing a small amount in the FPGA area (Achronix), and “a couple of strategic customers that I am unable to discuss at this time”. Would Apple be considered strategic?

    While I’m at it, why would Intel do foundry work for a startup FPGA company? My guess is that Intel intends to include a chunk of FPGA in their first mobile SoC product. That would give unparalleled design flexibility to end customers who select that part.

    Side note: Apple and Intel have collaborated on the development of the Thunderbolt technology used in the Apple computers. This is an exclusive arrangement for some period of time, after which it will be opened to other equipment manufacturers. Intel makes the part.

    The Intel investment thesis

    • Ultrabooks will stimulate a new growth cycle in PCs.

    • Solid State Drives represent a $70 billion flash memory opportunity with Intel positioned well.

    • Intel has a huge fabrication technology lead over the next best competitor.

    • Intel is actively building out capacity to serve these new opportunities.

    • Intel’s mobile engagement will begin in 2012.

    • A final security solution.

    • An Apple/Intel relationship is very likely to come out of nowhere to surprise the doubters.

    • An Atom based SoC with embedded baseband and FPGA?

    • Intel’s additional manufacturing capacity could support a relatively short term doubling of the company.

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