Q4 Semiconductor growth rates

With 75% of the semiconductor revenue reported for Q4-16, it is possible to get an overview of the growth rates of the industry. The average growth rates for Q4-16 compared to Q4-15 is currently at 9.7%, which is high compared to the last few years stagnation.

An analysis of individual companies shows a wide dispersion of growth rates:

• It has obviously been a great year for graphical processors with AMD and in particular, Nvidia showing strong growth rates.
• Sony's high growth rate from image sensors and Mediatek's from SOC's suggests a good year in the consumer products space.
• Memory pricing has had a significant impact on revenue growth, favouring manufacturers of DRAM and Flash.
• Broad product portfolio companies have not had a stellar year except ST with an about average growth rate.
• The three main acquisitions have not resulted in immediate top line results. Worst has been the NXP/Freescale merger that has seen negative growth in a positive growth market. Although most Semiconductor mergers are not seeking revenue synergies but cost synergies it still demonstrates that M&A strategies only guarantees that a larger company emerges, not necessarily a better one.

Comparing revenue growth to growth of the cost of goods sold.

Adding growth rates for cost of goods sold reveals a number of new stories. It is not surprising that the CEO is usually satisfied with the quarter but what story do the numbers tell?

The most interesting in the chart is Intel's significant strong growth in cost of goods sold (COGS). These are big numbers - Intel's COGS went up with over 800M$/qtr. Included in the numbers are write-downs of Altera inventory and integration charges (mergers are not cheap). Intel's Data Center Group (17B$ revenue) despite revenue growth of 8% experienced a drop in operating profit from 50% to 40%. This could indicate that Intel is under pressure in the data centre market and has been lowering pricing to compete with Nvidia. This would explain Nvidia's strong growth rates and increasing margin.

I would be surprised if Intel's M&A team was not reviewing Nvidia numbers for a possible merger. The only problem is that Nvidia's current market value is well above 50B$ at the moment - a mouthful even for Intel.

Intel seems to have problems profiting on the increasing price of Flash Memory the other memory suppliers, in particular, Hynix, is benefitting from.

It looks like NXP is doing some serious house cleaning prior to the pending merger with Qualcomm.

Marvel's large drop in COGS is associated with significant charges they had in Q4-15 that are disappearing.

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* Although a few companies have fiscal quarters that are not aligned with the calendar quarter, we have chosen to assign the fiscal quarterly revenue to the calendar quarter in which it is reported. This skews some of the numbers slightly with minimum impact on the analysis.

** In merger situations we always compare revenue of the individual companies with the revenue of the merged company.

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