#DigitalSkeptic: CES Shows Semiconducters Are Next in the Kill Zone
In fact, the mergers and acquisitions scene in semiconductors has been brisk. Integrated Device Technology bought Fox Electronics in 2012 for $30 million. And San Jose's Micrel announced in August that it intends to buy oscillator-maker Discera for an undisclosed sum.
"What's happening is, the bigger integrated semi-makers are taking these no-margin orders and hoping to make that up on other product," Sherwood said glumly. "But the smaller players will probably have little choice. They either get bought or go out of business."
"Semiconductors has become very tough," he said.
Sherwood is far from the only analyst here wondering how the industry will make ends meet. As if on cue, midway through our chat Victoria Fodale strolled over and agreed wholeheartedly with Sherwood. Fodale is a senior analyst at IHS, the Tempe, Ariz., market research firm with a practice in global digital components "The demographics of the global consumer electronics is changing," she said. "Emerging markets demand lower prices. So that money has to come from somewhere, and the bigger makers are not afraid to demand concessions in pricing, which ofttimes they get." That, friends, makes it a Digital Age story investors know well: Fodale and Sherwood agree that what's driving the market in semiconductor oblivion is a blurred consumer electronics model that throws new features onto new devices without a clear vision of where the revenues will come from to pay for them. "Does everyone really need to have camera phones and navigation? The answer is no," Sherwood said. "What's really happening there is we are cannibalizing several bigger markets to make one smaller market. What, really, is the value of having a phone with a camera? Not that much from a dollar and cents view." "The big chip makers probably survive. But the smaller operators? I know I am looking for more customers for my research," Sherwood said. "Chips is going to get tough."
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV