Our Zacks senior analyst covering the semiconductor portion of the tech industry,
Abdul Saleh, has always been helpful with allowing investors to see how certain aspects of the industry are expected (or not expected) to improve over the near- to medium-term. Here's what he had for us most recently.
You cover the semiconductor industry within the overall tech sector. How are things progressing in this space these days?
As you might imagine, this is a very diverse field of companies and stocks, so I would do well to focus on a few recent reports I have completed. To give you an idea of how I rate the tech space overall, I am selecting a Buy, a Sell and a Hold.
Fair enough. Let's start with the Buy recommendation, first.
My most recent Buy report was issued on Altera Corp. (ALTR). We believe Altera is a play on the secular trend of PLDs [programmable logic devices] replacing ASICs [application-specific integrated circuits].
The hallmark of a PLD is its flexibility. When designs have to be altered, they can be re-programmed and brought to market faster. Changes can be made even when the devices are in the field. However, the unit cost of each PLD is more than the unit cost of an additional ASIC.
In the long run, PLDs are expected to replace ASICs, providing a strong opportunity for Altera's future growth. FPGAs [Field-Programmable Gate Arrays] now comprise approximately 71% of total PLD sales, and it is generally believed that the FPGA sub-segment will continue to be the fastest growing of the PLD market.
Is Altera the main company producing these products?
Altera's main rival is Xilinx (XLNX). Together they hold nearly 80% of the PLD market. However, the company has a strategic advantage over Xilinx regarding its HardCopy offering (a new type of high performance application-specific integrated circuit for which Xilinx does not really have a competing product).
The primary theme to watch at Altera over the next 12 months is new product introductions and technology migrations. During the 65nm transition cycle for the semiconductor industry, Altera trailed Xilinx significantly in terms of timing. Altera is only beginning to ramp up 65nm products at the moment.
Altera also will begin rolling out this year its first 45nm products. This is not only ahead of Xilinx, but uniquely is also at par with at least one of the two major PC central processing unit [CPU] vendors in the IC [integrated chip] industry.
Very interesting.
