During these months strongly affected by coronavirus emerged again the importance of an industry whose sales doubled in less than 10 years. If you are wondering what industry is , just think about what enabled technology to find treatments for Coronavirus or allowed work and study from home.
If you are thinking about Semiconductor Industry you are right.
The birth of semiconductors dates back to 1874. Decades later with the invention of the point contact transistor and the junction transistor in the US the sector knew an incredible growth. In 1957 the industry was worth 100 million dollars. With the inventions of computers, mobile phones and smartphones the industry saw its (biggest) increase.
The semiconductor industry has applications into different fields as:
• Telecommunication
• Medical
• Data Centre
• Automotive
• Healthcare
• Electronics
• Aerospace and Defence
They are essential for the operation of devices we use everyday and will be essential for the ones we will use tomorrow. Internet of Things, 5G, autonomous driving, Artificial Intelligence and future technologies will base their functioning on these small chips.
If you are thinking about Semiconductor Industry you are right.
The birth of semiconductors dates back to 1874. Decades later with the invention of the point contact transistor and the junction transistor in the US the sector knew an incredible growth. In 1957 the industry was worth 100 million dollars. With the inventions of computers, mobile phones and smartphones the industry saw its (biggest) increase.
The semiconductor industry has applications into different fields as:
• Telecommunication
• Medical
• Data Centre
• Automotive
• Healthcare
• Electronics
• Aerospace and Defence
They are essential for the operation of devices we use everyday and will be essential for the ones we will use tomorrow. Internet of Things, 5G, autonomous driving, Artificial Intelligence and future technologies will base their functioning on these small chips.
As shown in the graph , between 2017 and 2018 the demand grew but during 2018 it saw a sharp decline of over 12% . Statista’s forecasts expected the flattening of the demand as a consequence of the saturation of consumer electronics. However , analysts expect a robust growth from Autonomous Drive and new technologies. The market value is estimated to reach 726 billion by 2027. According to Deloitte the cost of components of electronic systems in a average car was 150$ in 2000 and is expected to grow up to 600$ by 2022. Jim Feldhan, President of Semiconductors Research, highlights the positive impact that 5G, server farms for cloud and streaming services, remote working, online purchasing and AI will have on the demand. According to Feldman big improvements in terms of efficiency will be achieved also in the medical sector in which semiconductors will be progressively more present.
Due to Covid 19 the expectations on the sales growth for 2020 declined from 6.6% to 3.3%. The growth is remarkable considering that this year was very challenging with some sectors down more than 50%.
Therefore semiconductor market is very strong, is growing faster than many others and is expected to keep this trend over the long term. Chips seem to be the fundamental ingredient of technology development.
Semiconductors’ sales Market share
United States are leader in the industry with 47% sales market share. U.S. has been the leader since 1990 thanks to huge amount of sources spent in R&D and its strength in design and manufacturing process. Korea has a strong market share predominantly due to revenues generated from the memory chips. Korea indeed produces 58% of the world’s supply. Europe has a consistent market share but is not enlarging its sales over the last 13 years. China instead reports a significant improvement of its sales over the last years.
The following graph shows 2019 global sales market share.
The industry is characterised by hard competitiveness. Innovation has a central role and each company tries to develop more advanced technologies to beat competitors. The following graph shows Semiconductor companies and the rispettive sales for the first half 2019 and the first half 2020. The high number of companies create a competitive environment.
Due to Covid 19 the expectations on the sales growth for 2020 declined from 6.6% to 3.3%. The growth is remarkable considering that this year was very challenging with some sectors down more than 50%.
Therefore semiconductor market is very strong, is growing faster than many others and is expected to keep this trend over the long term. Chips seem to be the fundamental ingredient of technology development.
Semiconductors’ sales Market share
United States are leader in the industry with 47% sales market share. U.S. has been the leader since 1990 thanks to huge amount of sources spent in R&D and its strength in design and manufacturing process. Korea has a strong market share predominantly due to revenues generated from the memory chips. Korea indeed produces 58% of the world’s supply. Europe has a consistent market share but is not enlarging its sales over the last 13 years. China instead reports a significant improvement of its sales over the last years.
The following graph shows 2019 global sales market share.
The industry is characterised by hard competitiveness. Innovation has a central role and each company tries to develop more advanced technologies to beat competitors. The following graph shows Semiconductor companies and the rispettive sales for the first half 2019 and the first half 2020. The high number of companies create a competitive environment.
The leader of the market
With more than 75 billion U.S. dollars of revenues and a market share of 16.2% Intel is the market leader . Its strong positioning has been strengthened during the past years. From 2008 to 2019 it’s market share improved by 3%. The growth is remarkable considering that in the same period the sector’ sales doubled.
Intel revenues were 37 billion in 2008 and grew to almost 72 billion in 2019. Net income has registered a sharp increase in the last years, it soars from $9.6 billion in 2017 to $21 billion in 2019. Even more, its financial situation is solid with $136 billion of total asset and $59 billion of total liabilities.
Intel redditivity is astonishing considered its ROA of 17%, which is even more exceptional compared to 7% reported by AMD in 2019.
However its stock price is down 22% for the year. The main reason is that Intel announced in July it delayed its 7 nanometer processor until 2022 and the following year for servers. The announcement caused a drop of the shares, mainly because a further delay could be a significant advantages for competitors as AMD or NVIDIA that already sell 7 nanometer processors. Intel’s 7 nm processors are expected to be sold in late 2022, period in which TSMC will probably launch its 3 nm processors.
But how will this delay affect financial results of Intel?
Drop of Intel shares shows big concerns about Intel future results. Actual PE lower than 10 is incredibly low compared to its competitors. In order to make considerations about Intel future it would be helpful to understand what are the sources of revenues for Intel and how much processors worth on total sales.
Intel operates in two different segments : PC-Centric and data centric. The first one includes design and manufacturing of technology and more in general actual internet infrastructure. The second one instead includes all regarding new technologies as data centres, cloud computing, AI, Internet of Things and autonomous driving.
Pc-Centric revenues represent 52% of total revenues and includes processors. However as said before PC market is a mature industry, indeed Intel revenues from this segment were expected to hold steady and not to improve even before the delay of 7 nm processors.
According to Intel analysts data centric total addressable market will worth $230 billion in 2024 against $70 billion of PC-centric.
Consequently Intel is trying to focus on data centric revenues as this segment offers more opportunities. Bob Swan, Intel CEO, in an interview released in 2019 referring to data centric segment said “ We look at our market as a $300 billion ( total addressable market) where we don’t have 90percent share. We have roughly 30% share. So the prospects and opportunities to grow are much more significant”. This speech perfectly resume the market strategy of Intel in the years to come.
The future of Intel will depend on its ability of earning market share in a fast growing segment. Future is uncertain but with $13 billion invested each year in R&D and a solid financial situation Intel certainly has the potential to keep growing.
Emanuele Virno Lamberti
With more than 75 billion U.S. dollars of revenues and a market share of 16.2% Intel is the market leader . Its strong positioning has been strengthened during the past years. From 2008 to 2019 it’s market share improved by 3%. The growth is remarkable considering that in the same period the sector’ sales doubled.
Intel revenues were 37 billion in 2008 and grew to almost 72 billion in 2019. Net income has registered a sharp increase in the last years, it soars from $9.6 billion in 2017 to $21 billion in 2019. Even more, its financial situation is solid with $136 billion of total asset and $59 billion of total liabilities.
Intel redditivity is astonishing considered its ROA of 17%, which is even more exceptional compared to 7% reported by AMD in 2019.
However its stock price is down 22% for the year. The main reason is that Intel announced in July it delayed its 7 nanometer processor until 2022 and the following year for servers. The announcement caused a drop of the shares, mainly because a further delay could be a significant advantages for competitors as AMD or NVIDIA that already sell 7 nanometer processors. Intel’s 7 nm processors are expected to be sold in late 2022, period in which TSMC will probably launch its 3 nm processors.
But how will this delay affect financial results of Intel?
Drop of Intel shares shows big concerns about Intel future results. Actual PE lower than 10 is incredibly low compared to its competitors. In order to make considerations about Intel future it would be helpful to understand what are the sources of revenues for Intel and how much processors worth on total sales.
Intel operates in two different segments : PC-Centric and data centric. The first one includes design and manufacturing of technology and more in general actual internet infrastructure. The second one instead includes all regarding new technologies as data centres, cloud computing, AI, Internet of Things and autonomous driving.
Pc-Centric revenues represent 52% of total revenues and includes processors. However as said before PC market is a mature industry, indeed Intel revenues from this segment were expected to hold steady and not to improve even before the delay of 7 nm processors.
According to Intel analysts data centric total addressable market will worth $230 billion in 2024 against $70 billion of PC-centric.
Consequently Intel is trying to focus on data centric revenues as this segment offers more opportunities. Bob Swan, Intel CEO, in an interview released in 2019 referring to data centric segment said “ We look at our market as a $300 billion ( total addressable market) where we don’t have 90percent share. We have roughly 30% share. So the prospects and opportunities to grow are much more significant”. This speech perfectly resume the market strategy of Intel in the years to come.
The future of Intel will depend on its ability of earning market share in a fast growing segment. Future is uncertain but with $13 billion invested each year in R&D and a solid financial situation Intel certainly has the potential to keep growing.
Emanuele Virno Lamberti