Why Intel’s dominance is threatened in the semiconductor space



Intel’s dominance is threatened

Intel (INTC) dominates the semiconductor market. Over decades, it developed expertise in semiconductor manufacturing technology.

In the semiconductor space, organizations operate globally with products and offerings that require substantial investments in research and development, or R&D. However, the products and offerings usually have a short life cycle.

As a result, in order to protect investments and promote innovation, patents are very important. Any company that holds maximum patents has an edge over other companies in the industry.

If you feel positive about Intel’s growth prospects and want to gain exposure to it, you can consider investing in the VanEck Vectors Semiconductor ETF (SMH) or the Powershares QQQ Trust (QQQ). Intel accounts for about 19% and 3.41% of these ETFs, respectively.

As the above chart shows, IBM had the maximum patents received in 2014. Samsung (SSNLF), Toshiba (TOSBY), and Qualcomm (QCOM) were in the second, sixth, and seventh positions, respectively.

It’s concerning that Intel wasn’t on the top ten list of US patent receivers in 2014. It was ranked 11th. Intel’s current ranking raises doubts and concerns about it having the best fab IP.

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Increased capex spending

As we saw in fiscal year 2014, Intel spent ~21% of its revenue on capital spending—compared to ~19% in 2013. However, it isn’t the only company to do this—as the above chart shows. More chip making manufacturing facilities and plants translates to more price competition. This means the organizations that have gone fabless—ARM (ARMH), Qualcomm, and now IBM—could have price advantages.


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