The semiconductor industry is showing continuous growth, but in a cyclical pattern with high volatility. According to World Semiconductor Trade Statistics, or WSTS, semiconductor industry sales are expected to grow 4.5% this year, against a decline of 3.2% last year. The decline in the computer market segment and rising demand for analog and embedded segments are some of the reasons behind this volatility.
In light of this growth, here is an analysis of three semiconductor companies. To enhance revenue, these companies are adopting different strategies like launching new products and closing old manufacturing facilities. But, will these strategies provide good long-term investment opportunities?
Baseband growth and 5G Wi-Fi chips
It is expected that the new BCM23550 chip will contribute $130 million to Broadcom Corporation (NASDAQ:BRCM)’s second-quarter sales in 2013, and that its sales of baseband chips will grow 49.3% year-over-year to $522.2 million this year and $742.4 million next year.
The company recently launched 5G Wi-Fi combination chips for low-cost consumer devices and extended this technology for use in connected homes. These 5G Wi-Fi chips are three times faster and six times more power-efficient than the previous generation of Wi-Fi chips. The company will provide both standalone chips with 5G Wi-Fi and combo chips with Bluetooth capability.
These types of chips will be used in 50% of total wireless integrated circuits by the end of 2014. Broadcom Corporation (NASDAQ:BRCM) is the first company to offer 5G Wi-Fi technology across all platforms. The Wi-Fi, Bluetooth, and GPS combo chips together contribute to 25% of Broadcom Corporation (NASDAQ:BRCM)’s total revenue. The company expects to generate total revenue of $8.58 billion this year and $9.35 billion next year, up from $8 billion last year.
Snapdragon 400 processor and 3G subscriber growth in China
On June 4, 2013, announced that its wholly owned subsidiary, QUALCOMM, Inc. (NASDAQ:QCOM) Technologies, is offering a new Snapdragon 400 processor chip. This processor can be used in both 3G and 4G LTE networks. This processor will help QUALCOMM, Inc. (NASDAQ:QCOM) capture the low-cost smartphone market in China and other emerging markets. The chip will be available by end of this year.
The company dominates the smartphone processor market with 43%of market share. With the growing demand for smartphones, total revenue of the company is expected to rise to $24.36 billion this year and $26.72 billion next year, compared to $19.12 billion last year.
Strong 3G subscriber growth in China will benefit Qualcomm’s licensing business. Sale of subscriber equipment by QUALCOMM, Inc. (NASDAQ:QCOM) licensees generates more than 90% of patent licensing royalty revenue. Chinese wireless carriers China Mobile Ltd. (ADR) (NYSE:CHL), China Unicom (Hong Kong) Limited (NYSE:CHU), and China Telecom Corporation Limited (ADR) (NYSE:CHA) combined reported an addition of 16.5 million 3G subscribers in May 2013. Currently, 3G represent 26.6% of China’s total market.
Looking at subscriber growth in China, QUALCOMM, Inc. (NASDAQ:QCOM) should increase its TD-SCDMA subscriber share with its QUALCOMM, Inc. (NASDAQ:QCOM) Reference Design, or QRD program. TD-SCDMA is a 3G standard for mobile telecommunication in China. The company will benefit from strong growth trends of 3G in China through increased royalties and licensing revenue. The licensing and royalty revenue are expected to rise $7.78 billion this year and $8.60 billion next year, compared with $6.65 billion last year.
