Semiconductor companies that specialize in wireless and wireline communications, otherwise known as “comm. semis,” must respond to industry-shaping trends in order to stay afloat, and remain both competitive and efficient. But what are those trends and which names are staying ahead of the curve, following last year’s rally in stock prices?
“The first trend relates to integrating multiple chips into a single chip. Solutions that were offered across two, three or more chips are now being offered on a single chip. These chips are commonly referred to as ‘system on a chip,’ or SoC,” said Anil Doradla, an analyst at William Blair & Company. Doradla’s coverage universe includes communication semiconductors, wireless communications and electronic components companies.
“I believe companies that have SoC capabilities will continue to succeed. Examples include Qualcomm (QCOM) and Broadcom (BRCM) in the 3G and 4G space, Atheros (ATHR) in the WiFi space, Cavium (CAVM) and NetLogic (NETL) in the non-PC microprocessor space, and Silicon Labs (SLAB) in the mixed-signal space,” he added.
Another important trend Doradla observes is what he calls “application awareness,” which refers to the increased awareness of end-user applications by semiconductor chips and telecom infrastructures.
“Over the past couple of years, companies adopting these trends have seen significant payoffs. Successful companies, such as Starent Networks, now part of Cisco (CSCO), Cavium Networks, FFIV (FFIV), NetLogic Microsystems and Riverbed (RVBD), have one thing in common: All their products are application aware,” Doradla said. “These companies have successfully taken market share from their plain-old-vanilla system counterparts and have created businesses that are rich in ASPs and margins.”
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