Business Corpus: Semiconductor Companies: Where Are They In The Chip Cycle?The semiconductor industry has seen tremendous growth in recent years, but hit a soft patch in late 2018. Here’s what you need to know about the top companies in this cyclical industry. The post Semiconductor Companies: Where Are They In The Chip Cycle? appeared first on Investor's Business Daily.

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The semiconductor industry is notoriously cyclical. As such, semiconductor companies are subject to the ups and downs of regular chip cycles tied to the law of supply and demand.

When conditions are favorable, semiconductor makers have trouble keeping up with demand. But when supply exceeds demand — either through overproduction or a pullback in end markets — prices fall. In turn, so do manufacturing levels.

Investor's Business Daily divides semiconductor companies into three groups: chip manufacturers, fabless chip companies and chip-equipment makers.

Chip manufacturers own their fabrication plants, while fabless chip companies hire contract manufacturers to make the chips they design. Chip-equipment vendors supply the gear and materials used to produce semiconductor products.

Is The Semiconductor Industry Growing?

Though some segments of the semiconductor industry are seeing growth, many segments have reported slowing sales since late 2018. Memory chips and graphics chips are two areas that have experienced declines. Smartphone, automotive and industrial chip markets also have pulled back.

In general chipmakers and chip-equipment suppliers have guided Wall Street lower for the first half of 2019. However, most point to a modest recovery in the second half of the year.

The Semiconductor Industry Association says global chip sales rose 13.7% to $468.8 billion in 2018. That's despite the market weakening late in the year. The 2018 figure represented the industry's highest-ever annual total.

Memory chips were the largest semiconductor category with sales of $158 billion in 2018, representing 33.7% of the market. The next two largest categories were logic chips, at 23.3%, and micro integrated circuits, at 14.3%.

Current industry analysis suggests 2% to 3% growth in revenue this year and next for the chip industry. Memory chip sales are on pace to decline this year, while other segments should offset the shortfall.

RBC Capital Markets believes the semiconductor industry will bottom in the middle of the year before rebounding in the second half of 2019.

Largest Semiconductor Companies

IBD's Electronics-Semiconductor Manufacturing group currently ranks No. 31 out of 197 industry groups. Three months ago, it was No. 161.

The group includes 33 semiconductor companies. The largest chipmakers by market cap are Intel (INTC), Taiwan Semiconductor Manufacturing (TSM) and Texas Instruments (TXN), in descending order.

IBD's Electronics-Semiconductor Fabless group ranks No. 10. Three months ago, it was No. 118.

The group includes 33 stocks, topped by Broadcom (AVGO), Nvidia (NVDA) and Qualcomm (QCOM).

IBD's Electronics-Semiconductor Equipment group now ranks No. 41. Three months ago, it was No. 174.

It includes 34 stocks, led by ASML Holding (ASML), Applied Materials (AMAT) and Lam Research (LRCX).

Why Are Semiconductors So Important?

Semiconductors are important to the world because they power technologies that enrich the lives of consumers and make businesses and other enterprises run smarter, faster and more efficiently.

They provide the ingredient technologies for personal computers, tablets, smartphones and other gadgets. Semiconductors run communications networks and the internet. They are adding smarts to televisions, home appliances, automobiles and other devices.

Semiconductor chips also underpin such massive emerging trends as cloud computing, 5G wireless networks and artificial intelligence.

Chip Stocks To Watch And Semiconductor Industry News

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