Once upon a time, the fate of the traditional personal computer was linked to the fortunes of most semiconductor stocks.
Those days appear to be over.
There was a fair amount of buzz last month when research group IDC announced that global PC shipments suffered their worst year-over-year quarterly decline since they began tracking the numbers in 1994. And while just about everyone is aware of the migration from PCs to mobile computing devices and smartphones, the plunge of more than 13% was more bleak than most expected.1
And semiconductor stocks? As a group (measured by the Philadelphia Semiconductor Index), they sit at two-year highs, having surged about 30% in the past six months.
As for explaining this, it’s worth remembering the cyclical nature of the semiconductor market, and its continual hardships of meeting supply and demand. Last year, for example, wasn’t generally a great year for semiconductor sales, falling 2.7% globally from a year earlier.2
This year, however, the World Semiconductor Trade Statistics organization expects chip sales to climb 4.5%.2 Not exactly iPad growth rates, but still, it’s a move in the right direction.
Further, this could signal that this is a good upcoming stretch for semiconductor stocks. As a Goldman Sachs research note presciently pointed out at the beginning of the year, the Philadelphia chip index has, on average, significantly outperformed the S&P 500 once every five years since 1995.3 Goldman said it believed 2013 would be one of those “up” years, citing supply that had once again become “lean,” and a favorable setup that included short interest sitting at three-year highs.
Similarly important is that many semiconductor makers levered to the huge growth in tablets and smartphones have been recently rewarding their shareholders. The Tablet Takeover motif, for example, is up 9.1% in 2013, and 18.6% in the past 12 months. The motif’s semiconductor-stock portion or the motif’s portfolio, with its weighting of 45%, has climbed 34% in the past 12 months.
And recent data about the mobile PC market suggests more growth is expected to come. Research group NPD DisplaySearch said in a report last Tuesday that it expects shipped mobile PC devices to more than double in 2017, from the number of devices sold in 2012, as products with touch capability become standard. In fact, NPD sees 2013 as the year that tablets replace notebook PCs as the most popular mobile computing device.4
What is not known, however, is whether the expected boom in tablets means the extreme cyclicality in the semiconductor market – and its associated stocks – are things of the past.
1Damon Poeter, “IDC: PC Shipments Plummet in First Quarter,” pcmag.com, April 10, 2013, http://www.pcmag.com/article2/0,2817,2417655,00.asp, (accessed May 7, 2013.)
2“Global Semiconductor Industry Projected to Experience a Rebound in 2013,” March 4, 2013, http://news.investors.com/newsfeed-marketwire/030413-141445012-global-semiconductor-industry-projected-to-experience-a-rebound-in-2013.aspx, (accessed May 7, 2013).
3“Goldman Note Lifts Semiconductor ETFs,” benzinga.com, Jan. 2, 2013, http://www.benzinga.com/analyst-ratings/analyst-color/13/01/3209853/goldman-note-lifts-semiconductor-etfs, (accessed May 7, 2013).
4DisplaySearch, “Tablet PCs and Touch Adoption Expected to Drive Mobile PC Shipments Through 2017,” May 6, 2013, http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/130506_tablet_pcs_and_touch_adoption_