5 semiconductor companies you need to know about

Kanish Chugh

ETF Securities

Semiconductors are at the heart of modern computers and phones. Also known as microchips, they are the all-important “brains” behind any computer.

Semiconductors are complicated. The companies that make them are often invisible to the public, and how they operate can be hard to understand. Here we take a look at five important semiconductors and break down what they do.

Qualcomm

The advent of 5G phones has benefitted Qualcomm in a big way. Qualcomm is one of the premier microchip designers and has a memorably named headline product called the Snapdragon. This is one of the strongest smartphone chips used outside of the iPhone (Apple designs its own microchips for its iPhones).

Most high-end Samsung Galaxy smartphones, such as those in the S series, are powered by the Snapdragon. Samsung uses it because it is one of the best in class.

What is especially compelling about Qualcomm’s chips is that they are designed in such a way that they can drain less power and generate less heat while generating reasonable computation power. Consumers don’t want to buy phones that get really hot when they use them.

Xilinx

Pronounced “Zi – Links”, Xilinx is famous for producing field-programmable gate arrays. An FPGA is a flexible microchip that can be reprogrammed. As it can be chopped and changed, it can do lots of different tasks.

Xilinx has been in the news a lot recently because it is being acquired by AMD, one of the largest semiconductor designers.

This acquisition illustrates two important facts about the semiconductor industry. The first is that mergers are a big driver of value. The second is that you want to be big, given how capital intensive the industry is. Elsewhere in the industry, Nvidia is acquiring British semiconductor giant Arm.

Mediatek

The Taiwanese semiconductor designer Mediatek is not as well known as Taiwan Semiconductor, which is always in the spotlight.

Mediatek designs an array of chips for all kinds of electronics, including televisions, phones, and navigation equipment. However, it specialises in producing chips for Chinese smartphones.

The Chinese tech giant Xiaomi is a big client, especially given the backdrop global shortage in 5G chip supply. Mediatek has come onto some investors’ radars as a potential acquisition target for Chinese semiconductor factories, or “foundries” in industry jargon.(1) The Chinese government has stated its desire to build a local semiconductor industry and is heavily subsidising local businesses.

SK Hynix

This Korean giant is the second-largest memory chip company after Samsung. Memory chips are crucial as they allow computers to store things and remember them — like saving documents. Memory chips have two components: random access memory, which stores the data; and printed circuit boards, which connect the memory to the rest of the computer.

Only three companies in the world make top-quality DRAM chips: Micron (under its sub-brand Crucial), Samsung, and SK Hynix.

The two Korean companies — Samsung and SK Hynix — together control about 70% of the market.(2) Among SK, Hynix’s biggest clients include Apple, Dell and HP.

Taiwan Semiconductor

Taiwan Semiconductor (TPE: 2330) is a national champion of Taiwan and the biggest company on the country’s stock exchange by far.

Based in Taipei, TSMC is the world’s largest foundry for semiconductors, producing more than 50% of global supply. The company has benefited from Silicon Valley chip designers outsourcing chip manufacturing, with its largest client being Apple.

TSMC is also at the forefront of chip miniaturisation. TSMC and Samsung make the world’s smallest transistors, which are the gates that control computer code. This allows for more powerful computers and phones. Their fundamentals are very strong, with net margins of 38% and profits growing at 14% a year as of 30 June 2021.

In this interview with Livewire, I discuss the opportunities of this megatrend in greater detail: 

Investment Theme
The biggest company you've never heard of

Invest in semiconductors: dip into chips

For investors wanting to access this promising sector, the ETFS Semiconductor ETF (ASX: SEMI) provides one solution. SEMI buys the world’s 30 largest semiconductor businesses, spanning from foundries to designers to equipment makers. It is the first global semiconductor ETF to list in Australia. Find out more.

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ETF Specialist & Head of Distribution
ETF Securities

Kanish Chugh is responsible for distribution covering sales and marketing strategy for institutional, intermediary and retail clients. He joined ETF Securities in 2015 and has previous experience with Fidelity International, BlackRock and...

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