industry stocks III-V shares head south
During the last 12 months the share prices of all the leading III-V chipmakers have fallen.But why has the value of some companies dropped by just a few percent,while others have plummeted by more than two-thirds? Richard Stevenson investigates.
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t’s been a tough 12 months for everyone owning a portfolio of III-V shares. The share price of all the leading, publicly traded players in the compound semiconductor market has fallen in the year leading up to April 30, 2012, and in a few instances, share prices have lost more than half their value.
In some cases, it is easy to understand the lacklustre performance. The LED industry is suffering from overcapacity, which drives down chip prices and squeezes margins. And unfortunately, until solid-state lighting really takes off, this sector is going to resemble a bloodbath. What’s more, the pain felt here also has knock-on effects, such as declining MOCVD tool purchases, which hits the likes of Aixtron and Veeco.
However, in other sectors of the III-V industry, it is not as obvious why share prices have fallen across the board. For example, total revenue in the GaAs microelectronic market is expected to rise by about 6 percent per annum for the next few years, according to market analyst Strategy Analytics. However, this rise in growth is far less than the 35 percent hike in 2010, and it is probably this deceleration that is behind the drop in share prices.
The return of telecos? The company that performed best over the last 12 months is Infinera, a manufacturer of large-scale InP photonic chips, which it uses to build its own systems, primarily for long-haul optical networks. The share price of this firm, which is based in Sunnyvale, California, has hovered between $6 and just over $8.50 during the last year, and fell by just 2.4 percent during the period of evaluation employed for the construction of the Compound Semiconductor Share Price Leader Board (see page 40, Table 1).
Although this vertically integrated player in the telecommunications sector is topping the table, its
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www.compoundsemiconductor.net June 2012
financial results are far from impressive. For example, in its 2011 fiscal year that ended on 31 December 2011, company sales were $404.9 million, down from $454.4 million for the previous year, while losses increased from $27.9 million to $81.7 million and gross margins fell from 45 percent to 41 percent.
This trend is maintained in the most recent quarterly results, with sales of $104.7 million, losses of $11.2 million and a gross margin of 40 percent for the first quarter of 2012. Operating in this manner is eroding the company’s reserves: At the end of quarter one, 2012, the value of cash, cash-equivalents-restricted- cash and investments fell by $13 million to $240 million.
However, Infinera’s management team has good reason to be very optimistic about the company’s long-term future. It’s operating in a market that is widely tipped
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