The Philadelphia semiconductor Index was founded by the Philadelphia Stock Exchange in 1993. Its full English name is PHLX semiconductor Sector. It is the most influential semiconductor index in the world. As the vane of the global semiconductor industry, the Philadelphia Semiconductor Index symbolizes the global semiconductor trend and rise and fall.
Ten times in ten years, why is the semiconductor index so strong?
The Philadelphia Semiconductor Index was calculated on December 1, 1993, with an initial value of 200. As of December 31, 2019, the index was 1,849.62, nearly doubling over the past decade. Why has the Philadelphia Semiconductor Index achieved such strong growth?
First look at its selection criteria. The selection criteria for constituents of the Philadelphia Semiconductor Index are as follows:
1. Listed on the Nasdaq Stock Market, the New York Stock Exchange, the New York Stock Exchange or the CBOE Exchange;
2. Semiconductor companies whose main business is classified as designing, selling, manufacturing and selling;
3. There is still a minimum market value of at least US$100 million;
4. In the past 6 months, at least 1.5 million shares can be traded per share.
To closely track developments in the semiconductor market, the Philadelphia Semiconductor Index constituents are assessed annually in September. The index covers global semiconductor design, equipment, manufacturing, materials, etc. The securities that meet the standards are ranked according to their market capitalization, 30 are selected as constituent stocks, and the arithmetic average of stock prices is used to calculate. Therefore, the constituent stocks of the Philadelphia Semiconductor Index are basically the leaders in the global semiconductor industry.
Industry insiders pointed out that the semiconductor industry is the chassis of the entire technology, and its changes can demonstrate the evolution of technology.
The development of the semiconductor industry can be divided into three stages: PC and Internet era, mobile Internet era and 5G+AIOT era. Combing the context, we can find that it is the waves of technology that have shaped this “eternal sunrise industry”.
The first stage: PC and Internet era (1994-2009)
The driving force of this period is personal PC and wireless communication such as 2G and 3G. The high point of the index appeared in 2000, reaching 1362, but after 2000, with the bursting of the Internet bubble, the semiconductor index also began to decline. During this period, semiconductor leaders such as Samsung and Intel have been cultivated. At the same time, Microsoft and Cisco have also become important players in this era.
The second stage: the era of mobile Internet (2009-2018)
The main driving force of the mobile Internet era comes from 4G technology and the smartphone market accelerated by the iPhone 4. During this period, the semiconductor index continued to grow, and the global output value reached more than 300 billion US dollars. In the PC era, Microsoft and Intel formed a system-chip binding model. In the mobile Internet era, Android and Qualcomm also formed a strong alliance similar to Microsoft and Intel on the mobile side. The rise of Apple, Qualcomm, and Google all started in the era of the mobile Internet.
The third stage: 5G and AIOT era (2018-)
Since 2018, it has entered a period of convergence between the mobile Internet and the next era. On the one hand, the new generation of information technology is developing rapidly, and the growth momentum provided by 5G and AI has emerged. On the other hand, downstream wearable devices and the Internet of Things have reserved a certain growth momentum, and the global semiconductor output value will soon exceed 400 billion US dollars.
Obviously, every wave of technology has boosted the rise of the semiconductor index, and the new generation of information technology and core products have become two important driving forces.
Volatility is rising, and the semiconductor industry may enter the bottom of the cycle
In the long run, the Philadelphia Semiconductor Index has performed well, delivering nearly tenfold growth for the semiconductor industry within a decade. However, it is an indisputable fact that the global semiconductor market has shown a downturn in recent years.
In the first half of 2019, as supply chain inventories climbed, technical bottlenecks and uncertainty brought about by escalating trade frictions, many experts began to predict increased risks in the semiconductor industry. In May 2019, the ban on Huawei and the Sino-US trade war caused all 30 constituent stocks to decline, with a cumulative decline of 13.5% for the month. Affected by the semiconductor dispute between Japan and South Korea, although the semiconductor index rebounded slightly in June and July, it quickly fell back in August.
Despite a series of twists and turns, the global semiconductor market in 2019 is roughly the same as in 2018. In 2019, the sectors with the largest gains in U.S. stocks were the information technology and communication services sectors, and the semiconductor industry remained the biggest winner of the year. The cumulative increase in the Philadelphia Semiconductor Index far exceeded that of the S&P 500 over the same period, bringing huge returns to investors.
Domestically, mergers and acquisitions have become the key word of the year, showing the trend of industry leaders continuing to deepen their moats. In June 2019, Wingtech’s acquisition of the world’s largest IDM standard device semiconductor company, Nexperia, was officially approved by the China Securities Regulatory Commission. The transaction amount was as high as 26.7 billion yuan. This acquisition is also the largest M&A transaction in the history of the domestic semiconductor industry. Tsinghua Unigroup acquired Linxens, a French smart security chip company, for 18 billion yuan. Jingfang Technology acquired the Dutch company Anteryon for 32.25 million euros. A series of domestic integrations and international mergers and acquisitions have boosted the rapid rise of China’s semiconductor industry, and have also brought about a positive trend in the industry.
In fact, if the semiconductor industry is put into the historical context, that is, thinking with the help of the semiconductor industry cycle depicted by the Philadelphia Semiconductor Index. It can be boldly predicted that a new generation of information technology and products will drive a new round of growth in the semiconductor industry, and the industry cycle will bottom out.
In terms of technology, the new generation of information technology represented by 5G and the Internet of Things has become an innovative infrastructure, and many emerging industries such as smart factories, driverless cars, smart cities, and digital health will bring incremental demand. PricewaterhouseCoopers predicted in the “2019 Global Semiconductor Market Report” that the global semiconductor market will reach $575 billion by 2022, of which artificial intelligence-related semiconductor sales will rise from $6 billion to $30 billion.
In terms of core products, after the official commercial launch of 5G in 2020, it is expected to usher in a replacement cycle. According to IDC’s forecast, 5G mobile phones are expected to ship 6.7 million units in 2019, and the 4G mobile phone share is still as high as 95%. It is expected that by 2023, the annual shipment of 5G mobile phones will exceed 400 million units, and the penetration rate will exceed 25%. In addition, the rapid development of smart wearable products represented by Airpods will also bring incremental space.
Source: IDC 2019
The semiconductor industry is simply divided into three parts: upstream, middle and downstream. The upstream is equipment and materials, the midstream is semiconductor manufacturing, such as chip foundry and memory manufacturing, and the downstream is design and packaging. The more upstream, the greater the difficulty, and the greater the space for domestic substitution. At present, the self-sufficiency rate of my country’s semiconductor industry is only less than 15%. The goal of “Made in China 2025” is to achieve a self-sufficiency rate of 40% in 2020 and 50% in 2050. In the long run, industrial policy will also become an important driving force for the development of the domestic semiconductor industry.
From the PC and Internet era to the mobile Internet era, and then to the current 5G+AIOT era, the Philadelphia Semiconductor Index of the modern IC industry outlines the history of the semiconductor industry for more than 20 years. From this, we can also look for patterns to predict the cycle story of the semiconductor industry. At the same time, the operating situation of the semiconductor industry in 2019 has also made the industry more optimistic. Driven by the new generation of information technology, 5G replacement wave and industrial policies, the strong story of the semiconductor industry will continue to be written. .
Author: Li Wei
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