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From CNET News.com:
Semiconductor stocks have significantly underperformed the market for five years, even though worldwide chip sales have seen double-digit growth during the same period. Here's why.
First, the facts.
Sure enough, over the past five years, the PHLX semiconductor sector index (SOX) declined at a rate of 2.9 percent per year, while Merrill Lynch's semiconductor index exchange traded fund (SMH) declined 1.0 percent per year. The NASDAQ, on the other hand, experienced a 4.8 percent compound annual growth rate (CAGR) during the same period. Likewise, the Dow and S&P 500 grew 3.7 percent and 3.9 percent annually, respectively.
Indeed, the semiconductor sector has significantly underperformed the broad market.
(Credit: Steve Tobak)
And this in stark contrast to worldwide chip sales. According to market analyst firm iSuppli, worldwide semiconductor sales grew from $181 billion in 2003 to $270 billion in 2007, a CAGR of 10.5%. The same firm expects worldwide chip sales to grow to $291 billion in 2008.
So what's going on? Why the continued long-term downward trend in share prices in the face of solid industry growth?
For one thing, the chip sector is far from homogeneous. For example, the current memory chip glut has weighed heavily on the entire sector, since memories account for more than 20 percent of the total semiconductor market.
Also, the above indices exclude Samsung, Toshiba and a host of other top manufacturers that aren't listed on U.S. exchanges. That said, some of those firms are knee deep in memory chips, so I'm not sure they would positively impact the indices.
Perhaps the best way to understand the gap is to look at individual company's stocks. The included chart shows a five-year compound annual rate of growth or decline for the biggest U.S.-traded semiconductor stocks.
Read the whole article
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