According to the market researchers at IC Insights, the semiconductor industry might not achieve the exponential growth rates it once enjoyed, but it's not dead and buried, as some seem to think. DRAM and NAND flash segments should help push the entire semi industry to achieve 8% compounded annual growth through 2016.
Of course, certain segments will do better -- with NAND flash estimated to realize 16.6% annual growth -- while others not so much (analog growth will be just 3.3%), but it's all pushing semi growth inexorably higher, and it's being driven by the expansion of tablets, smartphones, and other mobile computing devices.
It's a clear choice
Over on Motley Fool CAPS, the industry screener lists 208 stocks under the seemingly quaint rubric of "electronics," of which more than half carry well-respected four- and five-star ratings, suggesting it wasn't retail investors who were writing off the industry. One of those that floats to the top is glass maker Corning (NYSE: GLW ) , which, despite making the damage-resistant Gorilla Glass screens for many of those portable devices driving the industry's gains, has seen its shares lose 20% of their value over the past year, well behind the 19% advance of the S&P 500.
In the most recent quarter, Corning saw continued growth in Gorilla Glass sales, no doubt in large part because the likes of Apple (Nasdaq: AAPL ) and Samsung are selling so many tablets and smartphones. But that has caused confusion among investors who wonder why, if it's growing like gangbusters, the stock is performing so poorly.
While there is strong growth, the specialty glass segment of Corning's business accounted for only 14% of total revenues in 2011. We'll probably see that percentage rise over time, but it's the display technology business -- the part that makes LCD glass for TVs -- that currently drives the company, representing 40% of sales, and that line continues to fight the weakness in consumer spending. And in this past quarter, even the Gorilla Glass business suffered a hiccup as one customer ordered the glass and then cut the order and changed the mix, and Corning wasn't able to respond to quickly enough.
The good news is the newest iteration of Gorilla Glass will be ramping up this year, and management is predicting even stronger growth from it. In addition, the back half of the year is a seasonally strong period for Corning, and it's looking for 10% to 15% sequential growth in the third quarter from the Specialty Materials segment (Gorilla Glass).
Clint35 sees the economic weakness in Europe spreading to the U.S. and probably causing further declines in Corning's stock, but our CAPS member thinks it still represents a good long-term investment: "This is a good price for patient investors."
At eight times earnings estimates, it certainly seems cheap, and with its enterprise value trading at just 12 times the free cash flow it generates, it presents as an attractive entry point, as Clint35 suggests. I've already rated Corning to outperform on CAPS, and if you want to see how that's been working out, follow along. Also feel free to tell me in the comments section below if you think I'm wrong.
Riding on coattails
Yet Corning's not the only one suffering from contradictory results, TriQuint Semiconductor (Nasdaq: TQNT ) also saw its shares fall 23% in the past 12 months, even though it's hitched its wagon to Apple's star.
Part of that had to do with analyst chatter that it lost some of Apple's business, but that was an argument I never bought. I've contended that between the expected launch of the iPhone 5 this fall, the difficulty Qualcomm (Nasdaq: QCOM ) has had in keeping up with demand for chips, and TriQuint's own management saying that business in the back half of the year is going to be strong, it's a tell the power amplifier maker is still firmly entrenched as an Apple supplier.
Other suppliers, like Cirrus Logic (Nasdaq: CRUS ) , have sounded similar notes of anticipation for a backloaded bonanza, and with analysts expecting the iPhone 5 to be the single biggest consumer-electronics product launch ever, with as many as 50 million units sold, we'll be seeing a big ramp-up in results from TriQuint and everyone else associated with it. With a new 7-inch iPad also expected to be launched this year, it's possible we'll see TriQuint components included in that as well.
I rated TriQuint Semiconductor to outperform the broad market indexes earlier this year, when all the gray clouds gathered, and I'll be maintaining that CAPScall because it seems clear the market is downplaying the potential. But give me your views in the comments box below on its prospects of bouncing back.
Ready for a rubber match
Interested in a more in-depth look at both Corning and Apple? Make sure to check out our brand-new premium research reports on both companies. Inside, you'll learn about the key things investors have to know about both companies, and what major opportunities and threats they'll see in the near future. Better yet, we're including a full year of analyst updates to go with it, so you can know how to react to key developments. To claim your copy, simply follow the links: here for Corning, and here for Apple.