How NVDA, QCOM, and INTC Are Changing with the Semiconductor Industry
2015 semiconductor stock trends
In 2015, the overall stock market suffered a slowdown. The semiconductor industry was severely hit by a slowdown in the PC and smartphone markets, and for the first time in its history, Apple’s (AAPL) iPhone sales slowed, and the company iPhone production by 30%.
Semi stocks with large exposure to the smartphone market, including Qorvo (QRVO) and Qualcomm (QCOM), were severely impacted in the second half of 2015, and this slowdown continued until February 2016.
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Amid this slowdown, a wave of consolidations hit the technology industry. The value of semiconductor M&A (mergers and acquisitions) deals have increased threefold in 2015. Some of the biggest M&A deals included a $37-billion Avago-Broadcom (AVGO) merger, a $11.8-billion NXP-Freescale merger, and a$16-billion Intel-Altera (INTC) merger. This changed the industry’s demographics, creating some very large companies with broad portfolios.
In 2016, semiconductor consolidation continued, and bigger deals were announced. Softbank acquired ARM Holdings for $32 billion, and then Qualcomm announced the acquisition of NXP for $43 billion. All these acquisitions were aimed at increasing exposure in the fast-growing markets of IoT (Internet of Things), AI (artificial intelligence), cloud computing, automotive, and communications.
At that time, many semiconductor companies started restructuring their businesses to refocus portfolios on core technologies and cut costs to improve profits amid slowing demand. Some chip companies sold their manufacturing facilities, and some discontinued or sold their non-core businesses. This is when we saw massive job cuts in the technology sector.
Management changes and new technology
As the focus shifted to newer technologies, several companies announced management changes and began poaching talent from competitors. For instance, Intel hired Qualcomm’s Murthy Renduchintala to head its IoT efforts.
Semiconductor companies also started investing capital in new technology. This was the time when the technology industry adopted AI (artificial intelligence) and started working aggressively on autonomous cars, VR (virtual reality), and 5G. The biggest beneficiary from this changing trend was Nvidia (NVDA), whose graphics cards became popular among cloud companies and automakers for accelerated computing. NVDA’s stock price rose 220% in 2016.
This revived demand in the semiconductor space brought semi stocks back in the limelight. In 2016, theiShares PHLX Semiconductor ETF (SOXX) rose ~39%, outperforming S&P 500 Index (SPY), which rose 9.5%.
2017 and the road ahead
Now, the semiconductor industry is starting to reap the benefits of the M&As, restructuring, transitioning, and capital spending. Almost all semi companies are now reporting strong growth in earnings, but the biggest earnings growth is being witnessed by memory chip manufacturers, as the market witnesses strong demand and pricing environment.
Notably, memory market leader Samsung’s (SSNLF) semiconductor revenue and earnings surpassed that of Intel in calendar 2Q17, making the former the world’s largest semiconductor company.