Fisher Investments on Technology E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Fisher Investments Press
• Sprache: Englisch

Seitenzahl: 266

Veröffentlichungsjahr: 2010

Beschreibung

The sixth installment of the Fisher Investments On series is a comprehensive guide to understanding and analyzing investment opportunities within the Technology sector. Fisher Investments on Technology can help you quickly become familiar with this highly diversified sector, how the sector is segmented by industries, their respective macroeconomic drivers, and the challenges facing Technology firms. This reliable guide skillfully addresses how to determine optimal times to invest in Technology stocks, and which industries and sub-industries have the potential to perform well in various environments. The global Technology sector is complex, including a variety of sub-industries and countries--each with their own unique characteristics. Using the framework found here, you'll discover how to identify these differences, spot opportunities, and avoid major pitfalls. Fisher Investments on Technology: * Discusses industry fundamentals, drivers, attributes, and potential challenges * Addresses the challenges unique to Technology and some common pitfalls to avoid. * Delves into top-down investment methodology as well as individual security analysis. * Outlines a five-step process to help differentiate Technology firms--designed to help you identify ones that may have greatest probability of outperforming * Provides investment strategies for a variety of market environments Filled with in-depth insights and expert advice, Fisher Investments on Technology provides a framework for understanding this sector and its industries to help you make better investment decisions--now and in the future. With this book as your guide, you can gain a global perspective of the Technology sector and discover strategies to help achieve your investing goals.

Leseprobe

Table of Contents

FISHER INVESTMENTS PRESS

Books by Ken Fisher

Title Page

Copyright Page

Foreword

Preface

USING YOUR TECHNOLOGY GUIDE

Acknowledgements

I - GETTING STARTED IN TECHNOLOGY

Chapter 1 - TECHNOLOGY BASICS

MORE THAN GADGETS ... A MEANS

TECHNOLOGY 101

STARTING SMALL: SEMICONDUCTORS

GETTING LARGER: PRODUCTS AND COMPONENTS

MAKING IT ALL WORK: SOFTWARE AND SERVICES

Chapter 2 - A BRIEF HISTORY OF MODERN TECHNOLOGY

THE SNOWBALL EVENT: HISTORY OF SEMICONDUCTORS

HISTORY OF COMPUTERS

HISTORY OF COMMUNICATIONS

HISTORY OF THE INTERNET

Chapter 3 - TECHNOLOGY SECTOR DRIVERS

ECONOMIC DRIVERS

POLITICAL DRIVERS

SENTIMENT DRIVERS

II - NEXT STEPS: TECHNOLOGY DETAILS

Chapter 4 - TECHNOLOGY SECTOR BREAKDOWN

GLOBAL INDUSTRY CLASSIFICATION STANDARD (GICS)

GLOBAL TECHNOLOGY BENCHMARKS

TECHNOLOGY INDUSTRY BREAKDOWN

Chapter 5 - CHALLENGES IN THE INFORMATION TECHNOLOGY SECTOR

PRODUCT MATURITY AND OBSOLESCENCE

FIGHTING MATURITY AND OBSOLESCENCE

EXTREME FLUCTUATIONS IN SUPPLY AND DEMAND

INTELLECTUAL PROPERTY THREATS

Chapter 6 - A DEEPER LOOK AT CURRENT AND EMERGING TECHNOLOGIES

SEMICONDUCTOR PRODUCTION PROCESS

EMERGING MANUFACTURING TECHNOLOGIES

COMPUTER TECHNOLOGY

III - THINKING LIKE A PORTFOLIO MANAGER

Chapter 7 - THE TOP-DOWN METHOD

INVESTING IS A SCIENCE

EINSTEIN’S BRAIN AND THE STOCK MARKET

THE TOP-DOWN METHOD

TOP-DOWN DECONSTRUCTED

MANAGING AGAINST A TECHNOLOGY BENCHMARK

Chapter 8 - SECURITY ANALYSIS

MAKE YOUR SELECTION

A FIVE-STEP PROCESS

IMPORTANT QUESTIONS TO ASK

Chapter 9 - UPGRADING YOUR PORTFOLIO—INVESTING STRATEGIES

STRATEGY 1: ADDING VALUE AT THE SECTOR LEVEL

STRATEGY 2: ADDING VALUE AT THE INDUSTRY LEVEL

STRATEGY 3: ADDING VALUE AT THE SECURITY LEVEL

STRATEGY 4: ADDING VALUE IN A TECHNOLOGY SECTOR DOWNTURN

STRATEGY 5: VENTURE CAPITAL

GOOD LUCK!

Glossary

Notes

About the Authors

Index

FISHER INVESTMENTS PRESS

Fisher Investments Press brings the research, analysis, and market intelligence of Fisher Investments’ research team, headed by CEO and New York Times best-selling author Ken Fisher, to all investors. The Press covers a range of investing and market-related topics for a wide audience—from novices to enthusiasts to professionals.

Books by Ken Fisher

How to Smell a RatThe Ten Roads to RichesThe Only Three Questions That Count100 Minds That Made the MarketThe Wall Street WaltzSuper Stocks

Fisher Investments SeriesOwn The World by Aaron Anderson 20/20 Money by Michael Hanson

Fisher Investments On SeriesFisher Investments on EnergyFisher Investments on MaterialsFisher Investments on Consumer StaplesFisher Investments on IndustrialsFisher Investments on Emerging MarketsFisher Investments on Technology

FISHERINVESTMENTSPRESS

Copyright © 2010 by Fisher Investments. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Important Disclaimers: This book reflects personal opinions, viewpoints and analyses of the author and should not be regarded as a description of advisory services provided by Fisher Investments or performance returns of any Fisher Investments client. Fisher Investments manages its clients’ accounts using a variety of investment techniques and strategies not necessarily discussed in this book. Nothing in this book constitutes investment advice or any recommendation with respect to a particular country, sector, industry, security or portfolio of securities. All information is impersonal and not tailored to the circumstances or investment needs of any specific person.

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Library of Congress Cataloging-in-Publication Data:

Fisher Investments.

Fisher Investments on technology / Fisher Investments with Brendan Erne and Andrew Teufel.

p. cm.—(Fisher Investments Press)

Includes bibliographical references and index.

eISBN : 978-0-470-60847-0

1. High technology industries. 2. Investments. I. Erne, Brendan.

II. Teufel, Andrew S. III. Title.

HC79.H53F57 2010

332.63’22—dc22

2009041413

Foreword

Welcome to the sixth in a series of investing guides from Fisher Investments Press—the first ever imprint from a money manager, produced in partnership with John Wiley & Sons. So far, we’ve also published guides on Energy, Materials, Consumer Staples, and Industrials—four of the ten standard industrial sector classifications—plus emerging markets, a dynamic, diverse region. If you’re a serious amateur or a new professional, I encourage you to read them all and I believe you will get at least some benefit from them—maybe a lot.

This guide is on Information Technology—currently about 12 percent of the money value or capitalization weighting of world stocks. Tech may bring to mind awesome TV screens, slick computers, and cool smartphones. But it’s also the guts of those products—the bitty brains that make today’s tiny phones as powerful as a room-sized computer from just a few decades back. And it’s also the IT services that make most firms in other sectors more efficient. If you run a business—any type—you are, in some way, in the technology business.

Many may hear “Tech” and still remember the 2000 Tech bubble. One hot Tech IPO after another in the late 1990s had the world dangerously euphoric, sending stock prices sky high. Eventually, the stock supply from all those IPOs swamped demand, and prices started falling. Tech stocks grinded their way down for three years, then lagged the stock market for years. Some may think Tech is inherently a riskier sector. Not so. Long term, all properly constructed equity categories will have similar returns and similar risks—finance theory says so. All sectors go through periods when they’re hot and when they’re not. After the period when they’re not, the risk is inherently lower.

Tech is, however, fairly economic sensitive—meaning it tends to do better than the market overall when the economy grows robustly, and less well when the economy is sluggish. It makes sense—firms put off upgrading computers and software if they’re worried about future profits in a recession. And you might not buy a new laptop—making the old one do for a bit longer. But when the economy turns around, firms need faster, better technology to compete. Better, newer, niftier, and more innovative technology is one of today’s business manager’s prime tools to get a leg up on competition, or at least ensure you don’t have a leg down on them.

But it’s not just a matter of hitting economic cycles right—which isn’t easy anyway. Some parts of Technology are more elastic than others, and some do better earlier and others later in a cycle. So understanding when Tech and each of its components are more likely to outperform and underperform relative to broader markets—and why—is vital to your success. This book can teach you how.

This book isn’t a simple to-do list for picking the “best” stocks, or a primer on timing markets. Such a thing is a fairytale, and anyone telling you otherwise is selling you something for sure—something you not only don’t need, but are better off without. Instead, this book and all the books in the series provide a workable, top-down framework for analyzing a sector. It gives you tools allowing you to use commonly available information to uncover profitable opportunities others overlook. And those opportunities can help you to make market bets relative to an appropriate benchmark, with the goal of winning more often than losing. It’s a scientific method that should serve your entire investing career. So good luck and enjoy the journey.

Ken Fisher CEO of Fisher Investments Author of the New York Times Best SellersThe Only Three Questions that Count, The Ten Roads to Riches, and How to Smell a Rat

Preface

The Fisher Investments On series is designed to provide individual investors, students, and aspiring investment professionals the tools necessary to understand and analyze investment opportunities, primarily for investing in global stocks.

Within the framework of a “top-down” investment method (more on that in Chapter 7), each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide is specifically on Technology, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment.

Why a top-down method? Vast evidence shows high-level, or “macro,” investment decisions are ultimately more important portfolio performance drivers than individual stocks. In other words, before picking stocks, investors can benefit greatly by first deciding if stocks are the best investment relative to other assets (like bonds or cash), and then choosing categories of stocks most likely to perform best on a forward-looking basis.

For example, a Technology sector stock picker in 1998 and 1999 probably saw his picks soar as investors cheered the so-called “New Economy.” However, from 2000 to 2002, he probably lost his shirt. Was he just smarter in 1998 and 1999? Did his analysis turn bad somehow? Unlikely. What mattered most were stocks in general, and especially US technology stocks, which did great in the late 1990s and poorly entering the new century. In other words, a top-down perspective on the broader economy was key to navigating markets—stock picking just wasn’t as important.

Fisher Investments on Technology will guide you in making top-down investment decisions specifically for the Technology sector. It shows how to determine better times to invest in Technology, what Technology industries are likelier to do best, and how individual stocks can benefit in various environments. The global Technology sector is complex, covering many industries and countries with unique characteristics. Using our framework, you will be better-equipped to identify their differences, spot opportunities, and avoid major pitfalls.

This book takes a global approach to Technology investing. Most US investors typically invest the majority of their assets in domestic securities; they forget America is less than half of the world stock market by weight—over 50 percent of investment opportunities are outside our borders. While a larger proportion of the world’s Technology weight is based in the US, many companies derive a significant portion of profits overseas. Given the vast market landscape and diverse geographic operations, it’s vital to have a global perspective when investing in Technology today.

USING YOUR TECHNOLOGY GUIDE

This guide is designed in three parts. Part I, “Getting Started in Technology,” discusses vital sector basics, including the history of major developments in Technology. We’ll also discuss sector level drivers that ultimately influence stock prices.

Part II, “Next Steps: Technology Details,” walks through the next step of sector analysis. We’ll take you through the global Technology sector investment universe and its diverse components. The Technology sector itself presents 3 industry groups, 8 industries, and 16 sub-industries. Various firms are driven by enterprise spending, others by consumers, some by infrastructure build-outs. Many are leveraged to combinations of these, yet others are leveraged to none. We will take you through the eight industries in detail, how they operate, and what drives profitability—to give you the tools to determine which industry will most likely outperform or underperform looking forward.

Part II also details many of the challenges Technology firms face, including historical examples of how these challenges have been met and overcome. Moreover, we’ll discuss certain products and manufacturing processes used today, as well as how they’re advancing through new and emerging technologies.

Part III, “Thinking Like a Portfolio Manager,” delves into a top-down investment methodology and individual security analysis. You’ll learn to ask important questions like: What are the most important elements to consider when analyzing semiconductor and PC firms? What are the greatest risks and red flags? This book gives you a five-step process to help differentiate firms so you can identify ones with a greater probability of outperforming. We’ll also discuss a few investment strategies to help determine when and how to overweight specific industries within the sector.

Fisher Investments on Technology won’t give you a “silver bullet” for picking the right Technology stocks. The fact is the “right” Technology stocks will be different in different times and situations. Instead, this guide provides a framework for understanding the sector and its industries so that you can be dynamic and find information the market hasn’t yet priced in. There won’t be any stock recommendations, target prices, or even a suggestion whether now is a good time to be invested in the Technology sector. The goal is to provide you with tools to make these decisions for yourself, now and in the future. Ultimately, our aim is to give you the framework for repeated, successful investing. Enjoy.

Acknowledgments

A number of colleagues and friends deserve tremendous praise and thanks for helping make this book a reality. We would like to extend our tremendous thanks to Ken Fisher for providing the opportunity to write this book. Jeff Silk deserves our thanks for constantly challenging us to improve and presenting new and insightful questions as fast as we can answer them. Our colleagues at Fisher Investments also deserve tremendous thanks for continually sharing their wealth of knowledge, insights, and analysis. Without these people the very concept of this book would never have been possible.

We owe enormous thanks to Lara Hoffmans for her guidance and significant editing contributions—she was instrumental in completing this book. We’d also like to thank Michael Hanson and Evelyn Chea for their editing work, as well as Evelyn’s assistance with citations and sources. Thanks to Dina Ezzat for handling tactical details, and to Leila Amiri for her attractive graphics and images. A special thanks to Brian Kepp, Roger Bohl, Charles Thies, Aaron Azelton, and Brad Pyles for their contributions to data and content. We’d also like to thank Tom Holmes for helping with some of the book’s graphics and tables.

Marc Haberman, Molly Lienesch, and Fabrizio Ornani were also instrumental in the creation of Fisher Investments Press, which created the infrastructure behind this book. Of course, this book would also not be possible without our data vendors, so we owe a big thank you to Thomson Reuters and Global Financial Data. We’d also like to thank our team at Wiley, for their support and guidance throughout this project, especially David Pugh and Kelly O’Connor.

Brendan Erne would also like to specifically thank his father Jim, mother Holly, and brother Joel for their ongoing support, as well as his manager John Hulwick for his understanding, patience, and encouragement through the book-writing process.

I

GETTING STARTED IN TECHNOLOGY

1

TECHNOLOGY BASICS

Technology is a word jammed with meanings. And through the years, it’s been philosophized more than you might imagine. Martin Heidegger regarded technology not just as a mechanical process, but a “bringing forth,” a “... mode of revealing. Technology comes to presence in the realm where revealing and un-concealment take place ... where truth happens” (319).

Wow! Who knew a simple guide to Tech investing could lead us to the nature of truth itself! Well, we’re not going to be quite that ambitious for this book, but it is important to realize technology captures our imagination more than most types of industry. Tech is virtually omnipresent in our greatest hopes and deepest fears about civilization. For every rapturous fantasy we have about flying cars and curing diseases, there are dystopic visions of tech run amok like the Terminator or Darth Vader.

The public has a romantic relationship with technology—sometimes as spiritual and potent as religion. The last years of the 1990s are quintessential—we collectively dispensed with the notion of economic cycles altogether and declared a “new economy” on the wings of savior technology. Conversely, even today we shudder to think of the awesome power of nuclear technology, of robotic soldiers and drone planes—forces seemingly too powerful to control, capable of inducing real Armageddon.

In short, technology carries potent emotional impact—and you’ll do well to remember that when investing in it. The romantic vision of technology and successful investing in it are two different matters entirely.

MORE THAN GADGETS ... A MEANS

Still, context about technology as an idea is important before we go further. Ultimately, a technology is a means to fulfill some purpose. So it may not just be chips or phones or other “gadgets.” Technology gets to the heart of human progress. A refined or new math equation is a technology—perhaps a new algorithm suddenly allows a trader to capture and profit from some inefficiency never possible on a derivatives trading desk; or an engineer discovers a simpler, more elegant equation to increase the number of transistors on a microchip, expanding processing power and thus what can be achieved by others still. Both are technologies. Processes are technologies, too—after all, what is software but a process, and what do we call Microsoft’s Windows software if not a technology?

Brian Arthur describes technology as capturing natural phenomena and putting them to use. This is done—always—by combination. A new technology is a combination of elements that already exist. That makes tech recursive—all devices consist of technologies within technologies. A microchip, for instance, functions as a computer’s “brain.” But you can break down a chip into its transistors and diodes (all separate technologies in themselves). And you can also trace a chip’s functionality all the way down to its most basic features until, ultimately, you get to the basic physics of capturing and manipulating electrical current and conductivity. That is, a chip, at its most essential level, is a use of the phenomenon of electricity toward another end.

Maybe the notion that tech is recursive (technologies within technologies and building on each other) and combinatorial seems obvious, but it’s especially important to realize when considering advancements in a larger economy. The elements of anything new must preexist before an innovation (new combination) can take place. We couldn’t have a jet plane before we first discovered how flight and aerodynamics worked, or how jet propulsion and fossil fuel combustion worked; likewise, there can’t be an Intel 4 Pentium chip until you had the 3 version, and so on. So even a product that seems “brand new” didn’t come totally from out of the blue. Apple’s iPhone seems totally groundbreaking, but in truth, it merely combines existing cell phone, computer, and touchscreen technologies in a unique way.

In some sense, technologies are never finished—they’re always in flux. There are always additions, streamlinings, and new innovations possible. And technologies are never perfect. Generally, a technology must be envisioned first (an engineer or inventor needs to first conceive of what’s being created) and executed second. Which means our technologies are not only discoveries of the uses of natural phenomena; they are also products of our minds. And we humans don’t tend to produce perfection on the first try. Instead, by iteration, we move forward, improving by increments upon what came before. That’s not just true conceptually; it’s also true pragmatically in any economy, which has fixed costs and existing infrastructures that can often only handle improvements on existing concepts. For instance, today’s PC manufacturers can certainly handle incremental improvements on a new Intel chip—they just adjust the motherboard and it fits right in. But if Intel were to suddenly ditch the semiconductor altogether and offer some kind of new, crazy organic microprocessor that computes on water and algae instead of electricity—well, let’s just say Dell would have a tough time manufacturing a computer around such a thing right away.

Over time, revolutions can and do take place—there is little doubt the way we make computers today will be wholly different and barely resemble what we do decades from now. The combinations lead to more and better combinations, ad infinitum, and at an accelerating pace. Revolution via small steps.

Which brings up an important point: We tend to think of tech innovation as faster and faster, smaller and smaller. But that’s far too narrow—technology is also about increasing interconnection, efficiency, and opening to new possibilities. New technology creates the potential for ever more and newer things—things we haven’t even conceived of yet.

On this broad definition, most things are technologies and technology is in just about everything. In fact, an economy is a kind of technology. Money is one of the greatest of all technologies because it allows folks to trade goods and services more efficiently than any other known mechanism. (Anyway, it’s a lot better than trying to deal in clay jars of oil or bartering with cattle, as in olden times.) Stocks and bonds and other tradable securities, too, are tremendous technologies—mechanisms that allow for capital to move ever more efficiently to places of greatest need. Even more, GDP is very much dependent on technology, because growth in productivity happens most often via technological advancement and is thus a huge driver of wealth creation.

But let’s not get too excited. This book is for making better investments in technology—correctly forecasting the ways innovation and technology transfer into rising stock prices requires a good dose of discipline and sobriety about these exciting concepts. Many of the greatest innovations and ideas don’t translate into company profits for a long time, if ever. For instance, liquid crystal display (LCD) technology has been around for decades, but it didn’t become economically viable for mass production as computer monitors and TV screens until recent years. Hundreds of startup tech companies—with seemingly can’t-miss ideas—have bankrupted over time. How to pick the right companies at the right times? How can investors quantify a company’s ability to innovate via real costs like research and development (R&D) expenses?

These are the sorts of questions this guide aims to address. But first, we need to cover the nuts and bolts of the products the world’s largest technology companies make and how they work. After all, to make a disciplined stock investment, an investor must understand the underlying business.

TECHNOLOGY 101

While technology is a broad-reaching term, the Technology sector includes firms that make or distribute electronically based products or services. The opportunity for Technology firms is massive. Firms in every sector and country can invest in technology to help improve the products and services they offer or even make business operations more efficient. For example, a Financials firm may invest in new data storage systems to back up client information. Or it could purchase faster servers to process the data and respond to client needs more quickly. Firms may risk falling behind in the global economy if they don’t periodically invest in upgrading their technology—which is why businesses are the leading spenders on technology while consumers are a distant second.

And the global Technology sector encompasses a wide range of firms. When folks think about technology, final products most often come to mind, like the ubiquitous personal computer (PC). Over the last few decades, these machines have made an impressive foray into mainstream society. Not only are PCs necessary for virtually every modern business, they also serve the needs of consumers as entertainment devices, databases, access points to the Internet, and more.

But producing the PC can require the input of many firms across the Technology sector, providing a variety of building blocks like chips, components, and software. Each of these building blocks can come from different companies and regions in the world. Some firms specialize in only one area while others focus on many, and some are purely service based. It’s a diverse, global sector.

STARTING SMALL: SEMICONDUCTORS

In order to better understand investment opportunities in the Technology sector, it’s essential to first know the basics of the underlying technology itself. And a good place to start is with semiconductors. As shown in Figure 1.1, these are manufactured early in the Technology supply chain.

Figure 1.1Technology Supply Chain

The semiconductor industry is highly complex. In fact, many books can be written on semiconductors and semiconductor equipment alone. Here, we’ll provide just a basic outline of the major semiconductor types so in your analysis of the sector you can understand who produces what and why.

But what exactly is a semiconductor? It’s a tiny bit of metal that executes orders—sometimes millions of them a second, depending on the complexity of the gadget it’s in. There are two basic types—discrete components and integrated circuits (explained more nearby). Semiconductors are usually made of silicon—hence “Silicon Valley” in Northern California where many semiconductor firms (designers and manufacturers) are located.

Discrete Components and Integrated Circuits

A discrete component contains one active element, like a transistor that simply turns an electrical signal on or off. A hybrid can contain more than one active element.

An integrated circuit (IC) is a chip imprinted with multiple active elements, like a series of transistors and other electronic or network components that work together to perform various tasks.

Semiconductors, often called chips, come in many forms and are one of the first and most important building blocks in manufacturing electronic devices. For example, a PC microprocessor is one type of semiconductor. It acts as the “brain,” sending electronic signals that tell PCs to process data.

Types of Semiconductors and End Market Applications

Discrete components are generally less complex—they only contain one active element. A capacitor is an example—it is a single component serving no other purpose than storing an electrical charge (which represents the active element). Capacitors are in essence temporary batteries, often found in electronic devices to maintain power in the absence of traditional batteries. Discrete components represent the larger portion of total semiconductor shipments. But because they are simplistic and therefore easier and cheaper to design and manufacture, they sell for a lower price than most other semiconductors.

Integrated Circuits (ICs) are more complex semiconductors with multiple active elements—often an aggregation of many discrete components (hence the term integrated).They are sold in smaller volumes, but their higher prices mean ICs make up the lion’s share of the semiconductor market. And because they are generally more important to the sector, this section focuses primarily on ICs.

ICs can be broken down into myriad categories, but at the highest level, there are digital and analog ICs. They are differentiated based on the type of signals processed by the device. A digital signal is information coded as discrete sets of numbers (generally binary digits), whereas analog is a continuous “real world” signal such as sound, temperature, or voltage. Typical analog semiconductors include power amplifiers and converters. Typical digital semiconductors include microprocessors and memory.

But electronics don’t solely use one kind of semiconductor. For example, cell phones have both analog and digital ICs. Speaking into a cell phone creates an analog signal—the voice. The analog IC converts the signal into digital code. This code is processed by a digital IC and sent over the air to the other end of the phone call where it’s converted back to an analog signal—the voice heard on the other end.

Analog ICs Analog semiconductors are a smaller portion of the total IC market relative to digital, but producing them remains a lucrative business. These devices are notoriously difficult to engineer, creating high barriers to entry for the industry. This also means analog designs typically have longer life cycles. Extended life cycles reduce chip manufacturers’ urgency to upgrade to the latest and best production equipment, thus lowering development costs. These factors together give analog ICs the highest gross margins in the semiconductor industry.

The analog market can be segmented into standard products and application specific standard products (ASSP). Standard analog ICs can be used in a multitude of end products while ASSPs are designed for one specific end product. Power management chips, amplifiers, and converters are all standard analog ICs. But these can become ASSPs if modified to meet a certain end product’s specifications.

Digital ICs The majority of the semiconductor market is made up of digital ICs. They’re more precise—able to make highly complex calculations. Unlike analog, producing digital chips is hugely capital intensive. Their shorter life cycles relative to analog chips force manufacturers to invest in cutting-edge production equipment to improve and differentiate their products. For example, memory chip manufactures all compete to produce chips on the smallest scale with the largest storage capacity. In order to constantly improve on these metrics, they must invest in the latest and greatest manufacturing equipment. Most digital chips can be broken down into two categories—logic and memory—logic being the larger market.

Standard logic ICs include what could be the most widely recognized semiconductor: the microprocessor. This is an electronic device’s “brain” and is most often found in computational machines like PCs, servers, mainframes, etc. Microcontrollers also fall into the standard logic space. (Microcontrollers are similar to microprocessors but are used in devices requiring less computational speed and power.) Automobiles, washing machines, and office equipment use microcontrollers. Outside the standard market, there are myriad logic chips with more specific purposes—like application processors, which are basically less powerful microprocessors found in cell phones.

The two most common types of memory ICs are dynamic random access memory (DRAM) and NAND (i.e., “not and”) flash. DRAM is commonly found in computers and is a form of volatile memory— it does not retain information in the absence of a power source. Conversely, NAND flash is a form of nonvolatile memory, which retains information without power. NAND is most often found in consumer electronics like cell phones and MP3 players.

End-Market Applications

Once manufactured, semiconductors are shipped to equipment manufacturers in various end markets. The largest end markets are computers and mobile handsets—representing 40 percent and 20 percent of global semiconductor consumption, respectively.1 The remaining end markets are divided between consumer electronics, industrial applications, automotive, and other forms of communication equipment.

Until 2000, the Americas represented the largest regional consumer of semiconductors. But beginning in 2001, Asia Pacific (excluding Japan, the world’s second largest economy) took the lead and, by 2007, made up 48 percent of global semiconductor sales.2 This dominance was due to the large concentration of electronic equipment manufacturers in the region. In aggregate, this market has grown from only $342,000 in annual sales to over $255 billion in the last 30 years.3

GETTING LARGER: PRODUCTS AND COMPONENTS

After development and shipment, a semiconductor is then built into its corresponding final product. This section details products in the computer hardware, communications equipment, and consumer electronics end markets, as well as major components for each.

Computer Hardware

One of the most widely recognized Technology products is the computer or, more specifically, the PC. To the average person, a PC is often used for work, accessing the Internet, storing and playing media files, or writing college term papers. But a PC is only one of many types of computers.

A computer, simply, is a data-processing machine. It follows sets of coded instructions to perform tasks like saving and retrieving files. Mainframes, workstations, and servers are also computers—each is a type of data-processing machine. Unlike simple calculators, computers can be programmed to perform more than one task. At their core is the microprocessor, which interprets and executes various programs allowing them to function. These devices have also given rise to complex storage systems that centralize data.

Personal Computers (PCs)