This guide highlights the key performance indicators for the Semiconductor industry and where investors should look to find an investment edge. While this guide is not a fully integrated semiconductor industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the semiconductor industry. This guide will aid market participants in identifying industry trends and the future performance of semiconductors companies, by region and service type.
Semiconductors are materials with an electrical conductivity greater than an insulator and less than a conductor. Most semiconductors today are integrated circuits (ICs). An IC is a pint-sized electronic circuit on which thousands or millions of tiny resistors, capacitors, and transistors, are fabricated. Also known as chips, they are used in almost all electronic devices, including temperature sensors, 3D printing machines, autonomous vehicles, computers, smart appliances, solar plates, calculators, medical equipment, and LEDs, to name a few. In addition, the semiconductor industry benefits from advancements driven by artificial intelligence, 5G, the Internet of Things (IoT), and Metaverse.
The value chain of the semiconductor industry is illustrated below:
In this guide, we focus not only on the semiconductor industry as a whole but also dive into the different sub-industries that are crucial to this industry’s value chain. We have divided the semiconductor industry into five main sub-industries:
Semiconductor Fabrication
Fabrication is the process of manufacturing semiconductor chips. Simply put, the fabrication industry comprises semiconductor fabrication plants, also known as foundries or wafer fabs, that manufacture devices such as wafers and integrated circuits (IC), using a process known as wafer processing, wafer fabrication, or front-end manufacturing.
Broadline and ICs Semiconductors
The broadline semiconductor industry comprises integrated device manufacturers (IDMs). IDMs design, manufacture, assemble and test ICs in-house. However, many IDMs now outsource parts of their production to external foundries. As the cost and complexity associated with designing and fabricating ICs increase, many semiconductor companies are now specialists focusing on distinct stages of semiconductor manufacturing. This includes ICs that comprise fabless companies focusing only on the R&D and designing of semiconductors while outsourcing the manufacturing to fabrication plants.
Other Semiconductors
The other semiconductor industry includes a wide range of semiconductor goods and services that do not fit into any other sub-sectors of the larger semiconductor industry. The industry also comprises companies that offer semiconductor testing, assembly, and packaging services. This includes outsourced semiconductor assembly and test (OSAT) vendors that provide third-party IC-packaging and testing services. Fabrication plants, IDMs, and fabless companies often outsource their IC packaging, testing, and assembly to OSAT vendors.
Semiconductor Equipment
The semiconductor equipment sector is closely intertwined with the semiconductor market. In theory, if the semiconductor market experiences flat growth, the semiconductor equipment manufacturing market will also experience a flat growth rate.
The semiconductor equipment industry manufactures wafer processing equipment, semiconductor assembly, packaging equipment, and other machinery used to produce semiconductors. Semiconductor device manufacturers and foundries are the main customer base for the semiconductor equipment industry.
Memory, Storage & Peripheral
Memory semiconductors are electronic devices used as computer memory for storing digital information using IC (integrated circuit) technology. Computer memory used in desktops and laptops, smartphones, cameras, commercial IT applications such as data centers, the telecom industry, traditional industrial applications, and connected/IoT applications are all examples of semiconductor memory devices. Computer memory consists primarily of volatile memory and non-volatile memory. Volatile memory mainly includes dynamic random-access memory (DRAM) and static random access memory (SRAM). Non-volatile memory includes NAND flash. DRAM is short-term memory, in that it temporarily stores data processed in personal computers, servers, and mobile devices. On the other hand, NAND is the long-term memory used in most computing devices today.
There are several types of semiconductors, and this section does not attempt to provide an exhaustive overview. Instead, the aim is to explain common industry business models and how they relate to the different semiconductor sub-industries, we cover on our platform.
A wafer is a thin slice of semiconductor used to fabricate ICs. Semiconductor fabrication companies earn revenue from manufacturing wafers, available in a variety of diameters, including 25.4 mm (1 inch), and 300 mm (12 inches), with the next diameter projected to be 450 mm (18 inches).
Analysts frequently evaluate the wafer capacity measurement to gain a sense of wafer production and its impact on wafer prices. Wafer prices vary depending on the type of technology node being produced. Technology node refers to a specific semiconductor manufacturing process and its design rules. Also known as process nodes, they are typically named with a number followed by the abbreviation for nanometer: 32nm, 22nm, 14nm, and microns: 0.10 micron to 0.13 micron, etc.
The total revenue of the fabrication industry is calculated by adding total wafer revenue with other revenue, which includes mask manufacturing, computer-aided technique services, licensing, and others. The sale of wafers is a significant source of revenue for companies in this industry. There are two approaches to computing wafer revenue:
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The broadline and IC industry’s overall revenue is generally derived from several end markets such as automotive, industrials, consumers, communication infrastructure, and computing.
OSAT businesses generate a majority of their revenue from segments such as assembly, testing, packaging, and other services. Other services refer to a wide range of business services associated with the semiconductor and electronic components market.
The semiconductor equipment industry generates revenue from a variety of products, including front-end equipment, back-end equipment, fab facility equipment, and other industrial automation and process control software and hardware. The most important metrics in this industry are shipment units and average selling price (ASP). Analysts generally multiply these metrics for specific semiconductor products to calculate their total product revenue.
The semiconductor memory, storage & peripheral industry’s business model is segmented into memory chips and storage devices.
As technology continually evolves, investment in research and development (R&D) is crucial for companies in the semiconductor industry. Capital expenditure covers investments in R&D, research infrastructure, plant and equipment, fabrication facility setups, and other areas in the semiconductor industry. Each semiconductor sub-industry has a different level of capital expenditure requirement. Fabrication plants and IDMs or in-house chip manufacturers require a relatively high level of capital expenditure budget to upgrade production capacity and stay ahead of the competition. Fabless companies focus on research and design of chips and outsource the entire production process function to foundries, thus avoiding high capital expenditure requirements.
Gross margin remains an important metric for semiconductor companies. A hefty portion of the cost of revenue is driven by the depreciation of plant and equipment, with the remainder being fixed and variable labor and material costs. Companies with differentiated and proprietary products tend to have higher margins.
The two most popular valuation multiples used for semiconductor stocks are the price-to-earnings (P/E) ratio and the enterprise value-to-sales (EV/Sales) ratio. P/E is generally a more volatile metric; as the semiconductor industry matures, the industry shows a declining P/E trend. In contrast, EV/Sales is a more consistent metric.
Investors may also consider enterprise value to free cash flow (EV/FCF) due to the differences in capital structures between integrated device makers and fabless companies. Some additional ratios that are relevant when analyzing companies in the industry are Debt/EBITDA, return on assets, and inventory turnover ratio.
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for semiconductors, whether at a company or industry level, some semiconductor KPIs to consider include:
Semiconductor Industry
Semiconductor (Including Fabrication, Broadline & ICs, and Other Semiconductors)
Semiconductor Equipment
Memory, Storage & Peripheral
To understand market expectations for the semiconductor industry, a key information source is sell-side analyst estimates and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of January 2023
Visible Alpha offers 55 semiconductor-related comp tables, across six semiconductor sub-industries, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for broadline semiconductors, ICs semiconductors, memory semiconductors, other semiconductors, semiconductor equipment, or semiconductor fabrication. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
NORTH AMERICA
ASIA
EMEA
Visible Alpha offers an innovative, integrated experience through real-time, granular consensus estimates and historical data created directly from the world’s leading equity analysts. Using a subset of the below KPIs, this data can help investors hone in on the key drivers of companies to uncover investment opportunities.
Gross Margin
Gross margin is calculated by dividing gross profit by total revenue. It is a good indicator of margin leverage, particularly for companies with high fixed expenses. Furthermore, the higher the gross margin, the more money a corporation keeps, which it can utilize to cover other expenses or pay off debt.
Capex To Sales
Capex to sales ratio compares a company’s total sales to its investments in property, plant, equipment, and other capital assets. The ratio demonstrates how aggressively a semiconductor company reinvests its revenue into productive assets.
Debt to EBITDA
The debt to EBITDA ratio compares a company’s overall commitments, including debt and other liabilities, to the real cash it generates and exposes whether or not the company is capable of paying its debt and other liabilities. When lenders and analysts look at a company’s debt to EBITDA ratio in the semiconductor industry, they are trying to figure out how well the company can pay off its loans.
Inventory Turnover Ratio
Inventory turnover ratio reflects a company’s ability to convert inventory into sales. The ratio also indicates whether management is effectively controlling inventory expenditures and whether they are purchasing too much or too little inventory. This ratio is calculated as the cost of goods sold (COGS) divided by the average inventory for the same period.
Return On Average Assets
Return on average assets assesses the efficiency with which a company generates revenue from its assets, machinery, and equipment. This is a crucial ratio to track because semiconductor companies rely largely on assets to generate income. It is calculated as net income divided by the average total assets. The greater this ratio is, the better because it indicates that the company is making more money with its working capital and net assets.
Wafer
A wafer is a thin slice of semiconductor material, such as crystalline silicon, used in the fabrication of integrated circuits (ICs)generally used in electronics.
Total Wafers Revenue
Total wafer revenue is the revenue generated from wafer fabrication and finished semiconductor wafers.
Wafer Capacity
Wafer capacity is a company’s maximum level of output in terms of manufacturing and delivering wafers. Capacity available in the Company Data set on our Insights platform includes 6 inches (150mm), 8 inches (200mm), and 12 inches (300mm), which are further standardized to 8-inch equivalent and 12-inch equivalent in the fabrication industry.
Average Selling Price (ASP)
Average selling price (ASP) is the price at which a wafer is generally sold. Wafer prices are generally determined by the technology used in manufacturing and the size of the wafer, along with the market demand for chips.
Capacity Utilization Rate (%)
Capacity utilization rate measures the percentage of a company’s potential output that is realized. The capacity utilization rate of a company can be measured to see how effectively it is achieving its full potential.
Shipment
Shipment is the volume of products (such as wafers and ICs) offered to a carrier at the point of origin for transportation to pre-defined delivery locations in the value chain.
Outsourced Semiconductor Assembly And Test (OSAT)
Outsourced semiconductor assembly and test (OSAT) are companies that provide third-party IC-packaging and test services. These businesses package and test silicon devices created by foundries before they are released to the market.
Total OSAT Revenue
Total OSAT revenue is revenue generated from rendering services such as assembly, packaging, and testing by OSATs.
Total Automotive Revenue
Total automotive revenue is the revenue generated by a semiconductor company from automotive semiconductors. This includes revenue generated from products used in LiDAR sensors, camera-based sensors, Matrix LEDs in electric vehicles, and 3-D mapping technology, among others.
Total Industrials Revenue
Total industrial revenue is the revenue generated by a semiconductor company from industrial semiconductors that are used in manufacturing systems, medical equipment, factory and building control, security, and energy management among others.
Total Communication Infrastructure Revenue
Total communication infrastructure revenue is the revenue generated by a semiconductor company from semiconductors used in communication infrastructure such as networking hardware, wireless infrastructure (radios, cellular base stations, and mobile backhaul), local area networks (LAN and WLAN), and DSL/cable/fiber among others.
Total Consumer Revenue
Total consumer revenue is the revenue generated by a semiconductor company from semiconductors used in consumer electronics products.
Total Computing Revenue
Total computing revenue is the revenue generated by a semiconductor company from semiconductors used in desktops, laptops, and servers. This includes microprocessors, graphics chips (GPUs), and other analog chips.
Total Data Center Revenue
Total data center revenue is the revenue generated from data centers. A data center service is an environment that allows data to be processed, networked, and stored. Infrastructure, cloud hosting, networks, consulting, and virtualization are the different segments of the data center services market.
Total Front-end Equipment Revenue
Total front-end equipment revenue is the revenue generated from front-end semiconductor manufacturing. Front-end equipment is the equipment used in front-end manufacturing processes. The process of manufacturing a wafer is referred to as front-end semiconductor manufacturing.
Total Back-end Equipment Revenue
Total back-end equipment revenue is the revenue generated from back-end semiconductor manufacturing. Back-end equipment includes the machinery required for the assembly, packaging, and testing of integrated circuits (ICs).
Total Lithography Revenue
Total lithography revenue is revenue generated from selling lithography machines. Semiconductor lithography, also known as photolithography, is one of the most common methods of fabricating integrated circuits.
Bits
In computing and digital communications, the bit is the most fundamental unit of data. A logical state with one of two potential values is represented by a bit. The most frequent representations for these values are “1” and “0,” but additional representations such as true/false, yes/no, +/, and on/off are also prevalent.
Bit Shipments – DRAM
Bits shipment – DRAM is the number of DRAM bits transferred from B2B and B2C.
Bit Shipments – NAND
Bits shipment – NAND is the number of NAND bits transferred from B2B and B2C.
Cost Per Bit
Cost per bit is simply the monetary cost (in dollars and cents) per unit of memory, i.e. assuming the quantity of memory required stays the same.
Average Selling Price (ASP)
The average selling price (ASP) is the price at which goods or services are usually sold. DRAM, NAND, and HDD are the products for which ASPs are available in the semiconductor industry.
Total DRAM Revenue
Total DRAM revenue is the revenue generated from the sale of DRAM. DRAM, short for dynamic random access memory, is a type of volatile storage technology, not suitable for long-term data storage. It is, nevertheless, quick and inexpensive, and thus extensively used for storing temporary data generated by any calculation.
Total NAND Flash Revenue
Total NAND flash revenue is the revenue generated from the sale of NAND flash products. NAND flash memory is a type of non-volatile storage technology, capable of storing data permanently. It is not as speedy as DRAM, but has a simpler intrinsic structure, making it easier to make and less costly than DRAM. As a result, NAND is a more popular memory technology for data storage.
Total HDD Revenue
Total HDD revenue is the revenue generated from HDD storage products. Storage is a component of a computer that enables the long-term storage and access of data. Storage is usually in the form of a solid-state drive (SSD) or a hard disc drive (HDD).
Total Cloud Solutions Revenue
Total cloud solutions revenue is the revenue generated from cloud solutions. Cloud solutions involve rendering services via the internet. This includes data storage, servers, databases, networking, and software, among other tools and applications. Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS) are the three main categories.
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This guide highlights the key performance indicators for the semiconductor industry and where investors should look to find an investment edge, including:
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