More than half of the global semiconductor industry's publicly listed companies "face the risk of possible financial distress" in 2014, and many could be acquired or go out of business, according to business advisory firm AlixPartners.
In 12-month study issued last week, AlixPartners contended that 53 per cent of the 191 publicly listed semiconductor firms around the world are in risky financial positions while 32 per cent are at high risk of financial distress.
"Though the popularity of end products such as smartphones, tablets, and pads is a rising tide lifting many boats in the semiconductor industry today, the industry as a whole faces persistent structural problems," Karl Roberts, managing director at AlixPartners and co-lead of the firm's global TMT (technology-media-telecommunications) Practice, said in a statement. "In many corners of the industry revenues and profits have been flat or declining for some time now, just as the demands for more spending on research and development have been escalating more than ever."
The AlixPartners study, which tracked earnings for the 191 companies from the third quarter of 2012 through the third quarter of 2013, found that the five largest semiconductor companies in the world accounted for about a third of industry revenues. Those companies also accounted for 52 per cent of earnings before interest, taxes, depreciation, and amortization (EBITDA) in the industry.
The five largest companies—Intel, Qualcomm, Taiwan Semiconductor Manufacturing Co. (TSMC), Texas Instruments (TI), and Hynix—enjoyed average EBITDA margins of 41 per cent over the period studied, according to AlixPartners. That was more than 250 perc ent higher than the average EBITDA margins of 16 per cent for the other 186 public semiconductor companies.
Meanwhile, some 44 per cent of the trailing 186 firms saw EBITDA margins of 10 per cent or lower, a level that could be a harbinger of potential cash-generation problems going forward, AlixPartners said.
Within the industry, semiconductor companies focused on solar products are in the riskiest positions, according to the business advisory firm, with 100 per cent of such companies facing "potential financial distress" and 82 per cent at "high risk." Other sectors within the industry facing possible financial problems are:
Package and test companies (92 per cent)Materials companies (52 per cent) Manufacturers doing their own fabrication (34 per cent) Electronic components companies (32 per cent)
AlixPartners found that equipment makers (11 per cent), fabless semiconductor firms (13 per cent), and contract fabrication companies or foundries (25 per cent) were the most financially stable sectors in the larger semiconductor industry.
Roberts said the industry has "endemic structural problems leading to financial distress" and expected to see "more consolidation via M&A" in 2014 as these issues come to a head for some firms.
The news comes even though last year worldwide sales of semiconductors soared in Q2.