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ARM Holdings plc (ADR) (ARMH), NVIDIA Corporation (NVDA), Intel Corporation (INTC): Should You Buy These Semiconductor Companies?

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Semiconductor companies, in order to enhance their presence in the market and generate higher revenue, are coming out with new processors. The global semiconductor industry reported sales of $291.6 billion in 2012. The World Semiconductor Trade Statistics estimates that the semiconductor market will grow by 4.5% this year, as compared to 3.2% last year. The new and upgraded processors produced by these companies will fulfill current demand and drive future growth.

In this article, I have covered three companies that manufacture semiconductors and are well-known for their chip manufacturing technology, positive performance, and innovative ideas.

New product with strong backlog

ARM Holdings plc (LON:ARM)

ARM Holdings plc (ADR) (NASDAQ:ARMH) announced its plan to launch a new chip, the Cortex-A12, next year. This new chip is designed to replace the five year old Cortex-A9. This chip will help the company target low-to-mid range smartphones and tablets ranging from $150-$350. It is expected that the majority of the smartphone market will be covered by low-to-mid range devices in the upcoming years.

The Cortex-A12 will increase processing speed by 40% compared to the Cortex-A9. Also, the Cortex-A12 chips are 30% smaller, with better battery life than Cortex-A9. This will improve the performance of mid-range phones without increasing their prices. The Cortex-A12 can be configured with the Cortex-A7 processor, which will improve power efficiency by almost 100%. ARM Holdings plc (ADR) (NASDAQ:ARMH) anticipates that the Cortex-A12 will let it address 580 million smartphones and tablet devices by 2015 with its functionality, performance, and power-efficiency.

ARM Holdings plc (ADR) (NASDAQ:ARMH)’s licenses contribute nearly 40% to the company’s total revenue. Its license revenue has seen a rise of 24% year-over-year to $95 million in the first quarter. License revenue is mainly driven by its backlog, which was approximately $100 million in 2012. Its backlog consists of around 73% of processor licenses, 13% of physical IP, and 14% of support and maintenance.

In this quarter, more than 70% of the processor license revenue was generated from the backlog, versus the normal 40%-60%. The backlog has increased by 5% and the company has signed 22 new processor licenses across the multiple-end market. ARM expects that around 24% of the backlog will be converted into revenue by the second or third quarter of 2013, and 55% by the second quarter of 2014. Its backlog has grown 3.5 times from 2010 and the company is expecting annual growth of 21.75%, generating $1.11 billion by the end of this year.

In the last five years, ARM Holdings plc (ADR) (NASDAQ:ARMH)’s shares went up almost nine times and dividend per share has more than doubled. ARM has a good dividend history in the last five years. It has shown progressive dividend growth from $0.04 per share to $0.07 per share. The current PEG ratio of less than one also reflects that it’s still potentially undervalued.

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