The days of playing the semiconductor cycle are over, and future gains are far more likely to result from smart stock-picking. That was the message behind recent data from the Semiconductor Industry Association, which showed industry revenues falling 2.2 per cent in August. Strong tablet and PC end markets were more than offset by continued low demand from consumer and industrial markets.
Tablets and smartphones are still gaining traction - as evidenced by Apple's progress - whilst tightened purse strings have left big-ticket consumer goods very much out of favour. Reassuringly, most UK semiconductor companies are dependent on the wireless market, and a number of them supply chip designs to industry behemoth Apple. If your designs are embedded in the iPhone4S, which broke records by selling more than 4m units within the first three days of its launch, you're in a good place.
A closer look at the new iPhone reveals that it is still based on
ARM supplies its chip designs to 95 per cent of the smartphone market, a fact that is clearly reflected in its premium share-price rating. ARM shares currently trade at 583p, compared to a discounted cash flow-based fair value of 480p derived by analysts at Espirito Santo. The same team estimates fair value of 310p for Imagination, against a share price of 457p. We would avoid