Sorting out Semiconductors

July 18, 2006



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The landscape for future semiconductor chips remains unknown, but there are some promising ideas and possibilities being developed.

One idea is being spearheaded by Freescale Semiconductor (FSL); a semiconductor spin-off from Motorola (MOT). Freescale is developing Magnetic RAM (MRAM), which brings together the best features of current DRAM and NAND into one chip. Fixed DRAM is fast at reading and writing data, although it loses data during power shortages. NAND is able to retain all memory, but doesn’t have the quickness of DRAM.

MRAM memory capacity is only 4 megabytes currently, but Freescale is working to improve this figure.

The popular Microsoft (MSFT) Xbox 360 game console uses a triple core PowerPC microprocessor built by IBM. IBM is also developing a Cell processor for the Sony PlayStation 3 with Sony and Toshiba.

It is impossible to give a succinct overview of the entire semiconductor sector due to the vast scale and scope of the industry. By highlighting some of the major players, it is easy to see how powerful the technology is, and how important it is to devices we use everyday. Analyst’s cautious remarks about the sector due to risks of softening demand and lower tech spending have hurt semiconductor stocks across the board. The safest investments are those that are cheaper with low P/E valuations, and those that can weather any downturn in the market.

Pioneers like Freescale continue to develop exciting new chips, but the reflection in share prices may be lost for now due to the cyclical nature of the business. Competition between companies like Intel and AMD ensure that increasingly sophisticated chips are released on a regular basis as each company tries to outdo the other. Factors including high oil prices, inflation threats, and worries about backdated stock options crimp the stocks of semiconductors, but the innovation of the sector will not cease.

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At the time of publication, Dhinesh Ganapathiappan did not own or control shares of any companies mentioned in this article.