The technology sector is pivotal in leading the market recovery, and therefore it pays to keep tabs on the evolving trends in the semiconductor industry — a key component of the broader technology sector.
Here are eight key trends identified for 2022 by Rosenblatt Securities analysts led by Hans Mosesmann:
Changing Structure: The Moore's Law trend is slowing, with the transition of AI 'training' to AI production or inferencing, after the 2016-2019 period of honing these into economically viable environments at the edge, analyst Mosesmann said. This has structurally changed the growth trajectory of the semiconductor industry, he added.
Growth Trending At Double The Pace Of Last Decade: The semiconductor industry is likely to see an extended period of secular growth at a rate of 8%-10% after a decade of mid-single-digit growth, the analyst said.
The current semiconductor cycle, powered by AI, has the legs to match or even eclipse the golden age of semiconductors, the 1990s, in which mid-teens sales growth was driven by massive desktop and internet dynamics, he added.
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Street's Tendency Of Viewing The Cycle As 'Vanilla' Is Short-Sighted: The Street and the industry, to some extent, are seeing the upward trajectory as being caused by pandemic disruptions, the analyst said. The reluctant view for 2022 is positioned as an inventory replenishment dynamic by customers and has not baked in the nature or origin of what is being witnessed, he added.
Semi Should See Increased Profitability: The cycle dynamic brings with it a material increase in profitability, Mosesmann said. The analyst sees a 300-500 basis point increase in gross margin from the 2010-2020 average PHLX Semiconductor Index constituent gross margin level of 48.9%.
System Architectures For Data Manipulation Vs. General Computing: AI, the analyst said, is driving a structural shift in system architectures from general purpose computing to data manipulation. New AI Systems need a low latency, high-performance and reliable communication system, with the 5G network promising to be the communication's backbone, he noted.
Intelligence At Every Node, Trillions Of Nodes: 5G not only increases performance but also scalability to trillions of nodes supporting machine-to-machine communications, the analyst said.
"Each node in the network will have various levels of intelligence i.e. needing CPU, AI, connectivity, AI/ML processing, signal processing, security, memory. The 5G network build out is in the very early stages of a multi-year deployment," the analyst wrote in the note.
ESG Focus Of Governments: Increased government spending worldwide to improve communications, transportation and security comes with some ESG requirements, particularly a quest to use less energy, Mosesmann said.
The gradual adoption of GaN and SiC-based products will serve to improve power efficiencies where silicon-based solutions have peaked, the analyst said.
Profitability Over Market Share Gains: Lending credence to expectations that the semiconductor cycle has not peaked, companies are spending substantially more time and money to build new capacity, Rosenblatt said. Additionally, following a decade of consolidation, management team strategies focus on profitability over market share gains, the firm added.
Rosenblatt's Favorite Top Semiconductor Picks: