It's been a pretty kind year to stock investors, with the S&P showing a 12.8% gain in 2010. Of course, kindness might still feel relative after a lost decade of negative returns that included the nauseating depths and panic of the financial crisis.

Still, not every stock sees gains when a rising tide lifts all boats. Here's a list of this year's 10 worst performers in the semiconductor industry that ignores companies who have gone bankrupt or sunk below $200 million in market capitalization.


Percent Return in 2010

FormFactor (Nasdaq: FORM)


MEMC Electronic Materials (NYSE: WFR)


Advanced Energy Industries


Tessera Technologies


Verigy (Nasdaq: VRGY)


Applied Materials (Nasdaq: AMAT)


Rubicon Technology (Nasdaq: RBCN)


Amkor Technology (Nasdaq: AMKR)


Varian Semiconductor Equipment


Brooks Automation (Nasdaq: BRKS)


Source: Capital IQ, a division of Standard & Poor's. Only includes companies listed on U.S. exchanges that contain a market capitalization greater than $200 million.

If anything, the list above shows how stable the semiconductor equipment industry was in 2010. After all, more than half of the list showed market-trailing but still positive returns. That meshes pretty well with the list I compiled of the top performing semiconductor equipment stocks of the year. That list saw several strong performers, but no stocks in the industry demonstrated eye-popping outperformance.

The reasoning why is pretty simple: Most of the semiconductor equipment stocks already saw strong movements in 2009. Given the industry's propensity for keeping huge amounts of cash to weather semiconductor ordering booms and busts, as soon as it became apparent that semiconductor demand was rebounding last year, semiconductor equipment stocks were fast to rebound. In a steady 2010, that left little room for either outsized gains or losses.

So what caused the steep fall-off for some of the industry's worst performers? In FormFactor's case, the company moved too aggressively into new product lines in recent years. After a series of dismal quarters, the CEO and CFO were replaced by new leadership in the middle of the year.

The second worst laggard in the group, MEMC, suffered through trying to transform its solar business. The lowlight came in late July when the company's earnings were poor enough to send the stock sinking 16% in a single day.

Should investors in these stocks be worried? There are always risks to a turnaround story, but I do see merit in FormFactor in particular. The company maintains 82% of its market capitalization in cold, hard cash and used to be a solidly profitable market leader before management stretched the company's resources too thin. While a complete return to the levels of profitability seen in 2007 is hardly assured, the company merely needs to show solid progress toward being profitable to realize solid returns in the coming years.

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