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

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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