Apples, Oranges, and Semiconductors

If you take a look at many of the common stock market indices you get the impression that market sectors tend to move in sync. Companies in the same broad industry sector are lumped together, and the results from a few of the leading companies are combined and adjusted to produce an industry index that is supposed to give some general feel for whether that sector is in or out of favor. The general investing public then tends to assume that if a particular index is moving up, then the related sector stocks are in favor and are good candidates for investment.

Unfortunately, life is never that simple and straight forward. Most of the industry sectors include a sort of miniature supply chain where some companies in the sector can be trending down while other companies in the very same sector are trending up dramatically. One interesting example is the semiconductor industry. People tend to view the whole industry as if it was one monolythic entity. The typical semiconductor development cycle is typically measured in terms of years, rather than quarters, and involves the cooperation and close linkage of up to sixty different suppliers. The front end of the process involves extensive investment in research and development, while the back end of the process is primarily manufacturing, distribution, and logistics centric. This results in cyclic business performance for companies within this sector. As a result, some of the 'semiconductor' companies, like those focused on electronic design automation (EDA) are going through a down cycle at the same time that many of the semiconductor chip and process equipment companies seem to be booming.

EDA industry tool sales decline in third quarter
Posted : 22 Dec 2003
EDA tool revenues declined in every major category during the third quarter compared to the same period a year ago. Still, the EDA industry managed to eke out 1 percent sequential growth thanks largely to the inclusion of new intellectual property companies in the report, according to the latest data from the EDA Consortium's Market Statistics Services (MSS).

EDA kept its growth streak alive, thanks largely to the addition of new semiconductor IP companies that did not report revenues to MSS in Q3, 2002. With the addition of two companies - Virage Logic and inSilicon - MSS reported Q3 of 2003 SIP revenues were $53 million, a 68 percent increase over last year's Q3. EDA overall numbers in Q3 were also helped by the first uptick in many quarters in design services, which grew to $63 million, a 3.8 percent increase over Q3, 2002.

EDA industry tool sales decline in third quarter