Semiconductors are instrumental in today’s world of advanced technology. For anyone new to semiconductors, they are found in many different electronic products like smartphones, computers, medical equipment, and appliances. Semiconductors amplify switching, signals, and energy conversion and have very widespread uses across multiple industries. People looking for investment opportunities in the semiconductor industry won’t find a shortage of opportunities, but finding the right one is the tricky part. Here’s a quick overview of what you need to know about semiconductor investing for your portfolio management.
Understand The Different Categories Of Semiconductors
In general, there are four main categories of semiconductors investors need to be aware of:
- Microprocessors – this category consists of the central processing units used to perform tasks. Intel is a company that stands out among the rest when it comes to microprocessors.
- Complex System on a Chip (SOC) – this category involves the development of integrated circuit chips. Complex SOC offers a wide range of opportunities for companies and investors alike.
- Memory – the market for memory chips has become so consolidated that only a few companies can still operate. Memory chips provide temporary storage and move information through the brains of technology devices.
- Commodity Integrated Circuit – this category focuses mainly on routine processing and is typically referred to as standard chips. These standard chips typically don’t offer a very high-profit margin for semiconductor companies.
What Sets Semiconductor Companies Apart From Their Competition?
When investors look for investment opportunities in the semiconductor industry, it’s important to focus on the companies themselves as much as the products or components they manufacture. The most successful semiconductor companies are the ones that create the fastest, smallest, and least expensive products that still pack enough power to satisfy consumer needs. Companies that develop and manufacture semiconductors with these characteristics, as well as maintain solid balance sheets, high-profit margins, and quality returns on stock investments, typically stand out among their competitors.
The Risks And Rewards Of Cyclicality For Investors
From a portfolio management perspective, investors have to look at individual companies as well as the overall performance of the industry to get a better idea on stock futures. The high cyclicality is a major consideration investors should make since it’s something they will have to always deal with in the industry. New products may have extremely high-profit margins for a short period, but then the demand can decrease just as quickly.
Cyclicality can be positive for investors since they can feel comfortable knowing the highs won’t get too high and the lows won’t get too low, for the most part. However, cyclicality can also create risk since semiconductor chips can be in development for many months or years without knowing how successful the end product will be. As an investor, you have to decide whether it’s worth waiting it out for a potentially big reward, or if the wait is too risky since the product may not be as successful as hoped.
Stock Investing Info is here to help you make sense of investment opportunities within the semiconductor industry. Feel free to contact us at any time if you have any questions about the industry as a whole or specific investment options.