If we look at Micron (MU), Qualcomm (QCOM) and Intel (INTC), three of the hottest semiconductor stocks of last year, we come away with a profound sigh. It's simply not happening for them and we have to, therefore, wonder about the group. Same with once-popular SanDisk (SNDK), Western Digital (WDC) and Seagate (STX), the first a putative king of flash memory and the second two the dominant disk-drive companies.
They are all down for the year, many by double digits, and they are flashing red for the components sector. Does that mean the semis and their brethren are finished, some sort of secular decline?
Hardly. It just means these companies are levered to the personal computer, which is in secular decline, and not the revolution in connectivity, which is the most powerful trend in tech today.
The truth is that the semiconductor group is about as strong as I have ever seen it, a fantastic leadership sector that is dominating all tech at a time when software, hardware, the Internet and the cloud are all in variation degrees of pausing and churning that gives a total false impression of the group.
Which are the standout companies in connectivity? First and foremost I like Skyworks Solutions (SWKS), which has become a colossus, a dominant parts maker for handsets, which have become the dominant way we get our information. This company's stock is up 40% for the year and kudos to Bryan Ashenberg and his Growth Seeker newsletter for pointing this one out to all of us. Skyworks, run by the amazing David Aldrich, is emblematic of all the good in semi world as its products dominate everywhere there are connections, including the smart home, the smart medical provider and the smart car, the wearable and aerospace defense. These are the frontiers of the future and Skyworks plays in them all. If there are indeed going to be 70 billion connected devices by 2020, then Skyworks is perhaps the best positioned to be a part of this revolution.
I could make the exact same case for a host of others in the group. Now that Cypress (CY) has closed its merger with Spansion, you have another utility semiconductor concern that specializes in touch, automotive, wearables, memory, power control and lighting. Again, it's about connectivity.
Avago (AVGO) operates in similar connective markets with an expertise in the fast-growing data center business and big communications, such as wireless base stations as well as printers, appliances, smart meters, medical image systems and patient monitoring. It sure helps that Apple (AAPL) is a 20% customer for cellphone chips, and Samsung's coming into the fold, too.
How about Qorvo (QRVO), the combination between RF Micro and Triquint, both of which used to go head to head on power amplifiers and radio frequency components for cellphones. This deal was meant to do one thing: change the balance of power between these two companies and cellphone makers Apple and Samsung. How do I know this? Because it's stated right in the website of Qorvo; the combination will, and I quote, "offer better bargaining power and make it harder for customers such as Apple and Samsung to negotiate pricing." How's that for an anti-competitive merger!
I like the combination of near-field communications specialist NXP (NXPI) -- think mobile payments and car infotainment systems -- and Freescale (FSL), which has chips largely used for the connected home and car. These combinations create a one-stop shop for devices to talk to each other, so important for the connectivity revolution.
Then there's Cirrus Logic (CRUS), a total survivor in the cellphone base, with best-in-class audio technology. The company's been able to stay independent simply because it has been able to stay ahead of the competition, hence its 43% move this year.
Now, given the runs in these stocks, one could say you have simply missed the move. I would come back and say, how can you possibly think that negatively, given the early innings of connectivity and the Internet of things, the rubric behind all of these companies? These companies are going to be the Intels of this era. They are leaving others in the dust with their combinations and their ever-expanding reach into wearables and the connected car and the home. Get used to these companies; they will be the household names of the next five years, leaving the legacy parts companies behind, along with the personal computer that is gradually going away as the major method of computing in this country and the world.
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