The Semiconductor Industry serves as a driver, enabler and indicator of technological progress. As environmental issues have become more of a concern today, semiconductor devices are being made to reduce power consumption, reduce heat dissipation, capture solar energy, create more efficient lighting solutions and so forth.
As environmental issues have become more of a concern today, semiconductor devices are being made to reduce power consumption, reduce heat dissipation, capture solar energy, create more efficient lighting solutions and so forth.
The biggest driver of semiconductor growth today is the data center because of the ongoing trend towards cloud computing as a road to saving costs and artificial intelligence that is fed by huge volumes of multi-format and multi-structured data from social networks, online commerce sites and other Internet-based activity. (Read: 4 Best Stocks & ETFs to Tap the Tech Boom)
As the advantages of storing information in the cloud for sharing on portable devices is evident, many more devices are getting connected, leading to the concept of connected smart cities. The connectivity of everyday things, called the Internet of Things, requires semiconductors at every stage and could grow into one of the greatest drivers of semiconductor sales.
Since the PC is no longer the only computing device, a range of other devices, including smartphones, tablets, 2-in-1s and convertibles continue to penetrate the market. Smartphones are growing rapidly into the center of people’s digital existence, connecting them to music in the car, helping them control gadgets in the home and also pairing up with wrist bands for fitness tracking. Each of the things they connect to also use electronics.
The line between computing and consumer goods is thereby blurring by the day. New categories like drones are entering the picture. (Read: Profit from the Semiconductor Rally with These ETFs)
Industrial automation, automotive, aerospace and defense, and medical devices are also consuming a growing number of semiconductors and there is much room to grow in each of these segments.
That said, the sluggishness in the PC market, which still accounts for the majority of chips, remains a dampener for the industry and is the sole reason for the modest estimates provided by market research firms:
Component Forecast
The Semiconductor Industry Association (SIA) expects semiconductor sales to decline 2.4% this year following a flat 2015 and despite a second-half rebound. Relatively stronger categories are expected to be discretes, analog and microcontrollers. The SIA also endorsed WSTS data projecting 2.0% growth in 2017 followed by 2.2% growth the following year.
IC Insights expects chip sales growth of 4% in 2016 with total unit shipments growing 5% to more than a trillion. Prices are expected to be stable. Semiconductor capital spending will fall 1% in 2016 with spending on flash memory and within the foundry segment the only areas to grow. (Read: 5 Reasons Why Tech Boom is Here to Stay)
The top semiconductor categories are expected to be cell phone MPUs (up 10% in 2016), signal conversion (up 10%), 32-bit MCU (up 8%), display drivers (up 6%), general purpose logic (up 6%) and NAND flash (up 6%). Wired communications chips (analog and special purpose logic) and wireless communications analog will each grow 6%. Auto and power management chips will be up 5% and PLDs up 3%. Computing logic, app specific analog chips for industrial and chips will grow and server MPUs will grow 2%.
Gartner says that worldwide semiconductor revenue will decline 0.6% in 2016 due to weakened demand for key electronic equipment, elevated inventory levels and the continuing impact of the strong dollar in some regions. The research firm says that weaker estimates for PCs, ultramobiles and smartphones were pulling down demand for semiconductors with IoT and wearables being too small to offset the impact this year.
Playing the Sector Through ETFs
Many semiconductor stocks are going places, but at times it’s difficult to hedge your bets given the moving parts. That’s why it’s safer to play the sector through ETFs that are more heavily weighted to these big players.
Here are a few ETFs tracking the industry, any of which could be interesting picks:
Van Eck Market Vectors Semiconductor ETF (SMH)
The Van Eck Market Vectors Semiconductor ETF was started in 1955 to replicate the price and yield performance of the Market Vectors U.S. Listed Semiconductor 25 Index.
This Index tracks the overall performance of 25 of the largest U.S. listed, publicly-traded semiconductor companies. Some of the largest holdings include Intel Corp (NASDAQ:INTC), Taiwan Semiconductor Manufacturing Company (TSM), Qualcomm (NASDAQ:QCOM) and NVIDIA (NASDAQ:NVDA). Over 13% of holdings are in Intel. Its expense ratio is 0.35% and its dividend yields 1.70%.
iShares PHLX Semiconductor ETF (SOXX)
Founded in 2001, the iShares PHLX Semiconductor ETF is based on U.S.-listed semiconductor stocks represented by the PHLX Semiconductor Sector Index.
The top holdings in the ETF include Intel (over 8% of holdings), NVIDIA (also over 8%), Qualcomm (nearly 8%), Texas Instruments (NASDAQ:TXN) (over 7%), and Broadcom (NASDAQ:AVGO) (over 7%). Its expense ratio is 0.48% and its dividend yields 1.11%. Net assets on Sep 28, 2016 were $472.6 million.
SPDR S&P Semiconductor ETF (XSD)
Founded in 2006, the SPDR S&P Semiconductor ETF tracks the S&P Semiconductor Select Industry Index. This is an equal-weighted ETF comprising 49 stocks with an expense ratio of 0.35% and a dividend yield of 0.61%.
Powershares Dynamic Semiconductors ETF (PSI)
The Powershares Dynamic Semiconductors ETF was started in 2005 to track the performance of the Dynamic Semiconductors Intellidex Index. At least 90% of its assets are invested in stocks that comprise the Index. Its top holdings include NVIDIA, Intel, Analog Devices, Qualcomm, Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX). The Fund and the Index are rebalanced and reconstituted quarterly in February, May, August and November. Its expense ratio is 0.63% and the dividend yields 0.25%.
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VANECK-SEMICON (SMH): ETF Research Reports
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Original post
Zacks Investment Research
As environmental issues have become more of a concern today, semiconductor devices are being made to reduce power consumption, reduce heat dissipation, capture solar energy, create more efficient lighting solutions and so forth.
The biggest driver of semiconductor growth today is the data center because of the ongoing trend towards cloud computing as a road to saving costs and artificial intelligence that is fed by huge volumes of multi-format and multi-structured data from social networks, online commerce sites and other Internet-based activity. (Read: 4 Best Stocks & ETFs to Tap the Tech Boom)
As the advantages of storing information in the cloud for sharing on portable devices is evident, many more devices are getting connected, leading to the concept of connected smart cities. The connectivity of everyday things, called the Internet of Things, requires semiconductors at every stage and could grow into one of the greatest drivers of semiconductor sales.
Since the PC is no longer the only computing device, a range of other devices, including smartphones, tablets, 2-in-1s and convertibles continue to penetrate the market. Smartphones are growing rapidly into the center of people’s digital existence, connecting them to music in the car, helping them control gadgets in the home and also pairing up with wrist bands for fitness tracking. Each of the things they connect to also use electronics.
The line between computing and consumer goods is thereby blurring by the day. New categories like drones are entering the picture. (Read: Profit from the Semiconductor Rally with These ETFs)
Industrial automation, automotive, aerospace and defense, and medical devices are also consuming a growing number of semiconductors and there is much room to grow in each of these segments.
That said, the sluggishness in the PC market, which still accounts for the majority of chips, remains a dampener for the industry and is the sole reason for the modest estimates provided by market research firms:
Component Forecast
The Semiconductor Industry Association (SIA) expects semiconductor sales to decline 2.4% this year following a flat 2015 and despite a second-half rebound. Relatively stronger categories are expected to be discretes, analog and microcontrollers. The SIA also endorsed WSTS data projecting 2.0% growth in 2017 followed by 2.2% growth the following year.
IC Insights expects chip sales growth of 4% in 2016 with total unit shipments growing 5% to more than a trillion. Prices are expected to be stable. Semiconductor capital spending will fall 1% in 2016 with spending on flash memory and within the foundry segment the only areas to grow. (Read: 5 Reasons Why Tech Boom is Here to Stay)
The top semiconductor categories are expected to be cell phone MPUs (up 10% in 2016), signal conversion (up 10%), 32-bit MCU (up 8%), display drivers (up 6%), general purpose logic (up 6%) and NAND flash (up 6%). Wired communications chips (analog and special purpose logic) and wireless communications analog will each grow 6%. Auto and power management chips will be up 5% and PLDs up 3%. Computing logic, app specific analog chips for industrial and chips will grow and server MPUs will grow 2%.
Gartner says that worldwide semiconductor revenue will decline 0.6% in 2016 due to weakened demand for key electronic equipment, elevated inventory levels and the continuing impact of the strong dollar in some regions. The research firm says that weaker estimates for PCs, ultramobiles and smartphones were pulling down demand for semiconductors with IoT and wearables being too small to offset the impact this year.
Playing the Sector Through ETFs
Many semiconductor stocks are going places, but at times it’s difficult to hedge your bets given the moving parts. That’s why it’s safer to play the sector through ETFs that are more heavily weighted to these big players.
Here are a few ETFs tracking the industry, any of which could be interesting picks:
Van Eck Market Vectors Semiconductor ETF (SMH)
The Van Eck Market Vectors Semiconductor ETF was started in 1955 to replicate the price and yield performance of the Market Vectors U.S. Listed Semiconductor 25 Index.
This Index tracks the overall performance of 25 of the largest U.S. listed, publicly-traded semiconductor companies. Some of the largest holdings include Intel Corp (NASDAQ:INTC), Taiwan Semiconductor Manufacturing Company (TSM), Qualcomm (NASDAQ:QCOM) and NVIDIA (NASDAQ:NVDA). Over 13% of holdings are in Intel. Its expense ratio is 0.35% and its dividend yields 1.70%.
iShares PHLX Semiconductor ETF (SOXX)
Founded in 2001, the iShares PHLX Semiconductor ETF is based on U.S.-listed semiconductor stocks represented by the PHLX Semiconductor Sector Index.
The top holdings in the ETF include Intel (over 8% of holdings), NVIDIA (also over 8%), Qualcomm (nearly 8%), Texas Instruments (NASDAQ:TXN) (over 7%), and Broadcom (NASDAQ:AVGO) (over 7%). Its expense ratio is 0.48% and its dividend yields 1.11%. Net assets on Sep 28, 2016 were $472.6 million.
SPDR S&P Semiconductor ETF (XSD)
Founded in 2006, the SPDR S&P Semiconductor ETF tracks the S&P Semiconductor Select Industry Index. This is an equal-weighted ETF comprising 49 stocks with an expense ratio of 0.35% and a dividend yield of 0.61%.
Powershares Dynamic Semiconductors ETF (PSI)
The Powershares Dynamic Semiconductors ETF was started in 2005 to track the performance of the Dynamic Semiconductors Intellidex Index. At least 90% of its assets are invested in stocks that comprise the Index. Its top holdings include NVIDIA, Intel, Analog Devices, Qualcomm, Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX). The Fund and the Index are rebalanced and reconstituted quarterly in February, May, August and November. Its expense ratio is 0.63% and the dividend yields 0.25%.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
VANECK-SEMICON (SMH): ETF Research Reports
ISHARS-PHLX SEM (SOXX): ETF Research Reports
SPDR-SP SEMICON (XSD): ETF Research Reports
PWRSH-DYN SEMI (PSI): ETF Research Reports
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Zacks Investment Research