If 2010's trends are anything to go by, then 2011 will be another year dominated by smartphones and tablet devices. Yet it's unclear just how much longer that can continue to propel share prices in the sector.
True, Microsoft has shipped over 1.5m phones that run its new Windows Phone 7 software, while Apple is pushing Apple TV, its $99 (£63) device that allows users to mix video and movie content, and download streaming films from the likes of Netflix. But, according to the Semiconductor Industry Association (SIA), worldwide semiconductor sales in October - the last period for which data had been collated - are showing signs of flagging as global stockpiles grow, with units sales of $26.3bn flat compared with September. The SIA's forecast for 2010 stands at a record $300bn, yet it's forecasting just 6 per cent growth for 2011, falling to 3.4 per cent in 2012.
Consumers' adoption of smartphones and tablets has been impressive and this should underpin royalty revenues for this year from key UK chip designers such as ARM Holdings and Imagination Technologies. But new licence sales could feel the squeeze in 2011 and, if so, then shares in the duo - often trading on multiples of over 40 times earnings - could be vulnerable.
That risk is heightened by the apparent bid premiums that have crept into many shares on nothing more than occasional M&A gossip. Tales of Apple mulling a bid for ARM, for example simply don't add up. It would leave Apple with a chip designer that supplies all of its key manufacturing rivals and, with a £5.8bn market value, ARM won't come cheap.
Elsewhere, high definition TV services are likely to be an exciting feature this year, and set-top box manufacturer Pace may also benefit from the launch of YouView; probably in late summer. That's a collaboration between broadband network and content suppliers, including TalkTalk and the BBC, which promises a connected free view box that will combine on-demand services, such as iPlayer and Channel 4's 4OD, with pay-per-view downloaded movies and allow users to record TV shows through the box's built-in hard drive.
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