Page 1
Semiconductor ETFs: A
compelling long-term investment
Tan De Jun
Equity Analyst, Stocks and ETFs Research
Page 2
Presentation outline
• Introduction to the global semiconductor industry
• Disruptive and emerging technologies that will drive
semiconductor demand
• Understanding the semiconductor cycle
• Valuations
• How ETF investors can participate in this long-term growth
story
Page 4
What are semiconductors all about
• Semiconductor products are essential
components of every electronic device.
• Semiconductor products include: memory,
microprocessors and integrated circuits.
• Types of companies:
– Pure Play Foundries: Companies that do not
have any design capabilities as they focus only
on the fabrication and testing of semiconductor
products.
– Fabless: Fabless companies are involved only in
the design and sale of semiconductor products,
while outsourcing the fabrication to foundries.
– Integrated Device Manufacturers (IDMs): IDMs
are companies that design, fabricate and sell
semiconductor products.
Page 5
US is the global leader in the semiconductor industry
US46%
Korea22%
Japan10%
European Union
9%
Taiwan6%
China5%
Geographical Market Share Breakdown
Communications32.0%
PCs30.3%
Consumer13.6%
Industrial13.1%
Automotive11.0%
End Use Segment Breakdown
Source: Semiconductor Industry Association Source: Semiconductor Industry Association
• The largest end use segment for semiconductor products is communications.
• US based firms holds the largest market share at 46%, owing to their leading position in
R&D.
Page 6
Positive expectations for revenue growth
• Between 2012-2018, semiconductor sales
grew at CAGR of 8.1%, reaching a record
high of USD 468 billion in 2018.
• Global semiconductor sales is expected to
cross the USD 500 billion mark by 2020.
0
100
200
300
400
500
600
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
Semiconductor Industry Revenue
(USD Billions)
Source: Bloomberg, iFAST Compilations, Gartner, Statista
Data as of Jan 2019
Page 8
Deployment of 5G networks
• 5G is the fifth generation wireless networking technology which will eventually replace the
existing 4G networks.
• Advantages of 5G include: faster speeds, lower latency, greater connectivity among
devices and more reliable connections.
• 5G technology requires significant upgrades to various hardware, such as networking
equipment and consumer electronics.
5G Phone Expected Launch Date
Samsung Galaxy S10 5G 1Q 2019
Huawei Mate X 2Q 2019
Xiaomi Mi Mix 3 5G 1Q 2019
LG V50 ThinQ 1Q 2019
Oppo 5G 3Q 2019
Sony Xperia 5G 3Q 2019
Source: Smartprix Source: Xiaomi
Page 9
Deployment of 5G networks
Source: Samsung
Page 10
Rising smartphone penetration rates
• Rising smartphone penetration rates and
users should contribute to increased
semiconductor demand.
• China, India and Indonesia’s average
smartphone penetration rate is only
36.8%, compared to the developed
markets average of 76.2%.
• Growth in smartphone penetration rates is
supported by trends such as Ecommerce
and mobile payment services.
Source: Newzoo, iFAST Compilations
*Based on top 10 countries with the highest penetration rates
Developed Countries* Penetration Rates (%)
United Kingdom 82.2
Netherlands 79.3
Sweden 78.8
Germany 78.8
United States 77.0
Belgium 76.6
France 72.5
Spain 72.1
Canada 68.6
Australia 67.6
Developed Average* 76.2
China, Indonesia, India 36.8
Page 11
The Internet of Things
• The internet of things (IOT) is an ecosystem of devices, all of which are connected to the
internet and each other.
• These devices will be able to share information with each other, helping us live our lives
more efficiently.
• By 2025, there will be approximately 75 billion connected devices in the world, all of which
would require some form of semiconductors.
0
10
20
30
40
50
60
70
80
20
15
20
16
20
17
20
18
20
19
E
20
20
E
20
21
E
20
22
E
20
23
E
20
24
E
20
25
E
Number of Connected Devices (Billions)
Source: StatistaSource: iotleague.com
Page 13
Semiconductor industry cycle
-60%
-40%
-20%
0%
20%
40%
60%
80%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Semiconductor Sales Growth (Year-On-Year)
-11%
Source: Bloomberg
Data as of 30 Apr 2019
Page 14
Time
Sem
icon
du
cto
r D
em
an
d
Selling
opportunity
Buying
opportunity
Production level
End user demand
Recession
The inventory cycle
Oversupply
phaseUndersupply
phase
Correction
phase
Page 15
The case of Nvidia
0
200
400
600
800
1000
1200
1400
1600
1800
0
50
100
150
200
250
300
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Inve
nto
rie
s (U
SD
mill
ion
s)
Sh
are
Pri
ce
(U
SD
)
NVDIA's Share Price vs Inventory
Last Price Inventories
Source: Bloomberg
Data as of 30 Apr 2019
Page 16
5
10
15
20
25
30
35
40
45
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
US
D (
bill
ion
s)
Semiconductor Monthly Sales
-44%
-37%
Slowdown in end user demand
Source: Bloomberg, SIA
Data as of 30 Apr 2019
Page 18
Further upside still available
Source: Bloomberg
Data as of 30 Apr 2019
12
13
14
15
16
17
18
19
500
700
900
1100
1300
1500
1700
1900
2100
2300
2013 2014 2015 2016 2017 2018 2019
Fo
rwa
rd P
E
Pri
ce
MVSMHTR Index
Price Forward PE Ratio
Page 19
Consensus estimates may be overly bearish
YearEarnings Per
Share
Estimated
Earnings
Growth (%)
Forward PEPotential
Upside (%)
2019E 131.6 0 16.9 6.6
2020E 145.6 10.6 15.3 18.0
2021E 170.1 16.9 13.1 37.4
Source: Bloomberg, iFAST Compilations
Page 20
Earnings revisions are usually late
0
20
40
60
80
100
120SOX Index Earnings Revisions
Down cycle
Source: Bloomberg
Data as of 30 Apr 2019
Down cycle Upcycle Upcycle
Page 21
Base case scenario
Year
*Adjusted
Earnings Per
Share
Estimated
Earnings
Growth (%)
Forward PEPotential
Upside (%)
2019E 131.6 0 16.9 6.6
2020E 174.7 32.7 12.7 41.5
2021E 204.1 16.8 10.9 65.3
Source: Bloomberg, iFAST Compilations
*Earnings are adjusted by 20%
Page 22
Best case scenario
Year
*Adjusted
Earnings Per
Share
Estimated
Earnings
Growth (%)
Forward PEPotential
Upside (%)
2019E 131.6 0 16.9 6.6
2020E 203.8 54.9 10.9 65.1
2021E 238.1 16.8 9.3 92.9
Source: Bloomberg, iFAST Compilations
*Earnings are adjusted by 40%
Page 23
Share prices are driven by earnings
Source: Bloomberg
Data as of 30 Apr 2019
-20
0
20
40
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
EP
S
Ind
ex
SOX Index vs EPS
Index EPS
Page 25
Why ETFs are suitable for the semiconductor industry
• Share prices of individual semiconductor companies can be extremely volatile at times.
• ETFs provide diversification and reduces company specific risk, mitigating the effect of
large losses in a single security.
-9.51%
-1.31%
Source: Bloomberg
Returns are indexed to 100 as of 1 Apr
85
90
95
100
105
110
115
1 Apr 2019 5 Apr 2019 9 Apr 2019 13 Apr 2019 17 Apr 2019 21 Apr 2019 25 Apr 2019 29 Apr 2019
Sh
are
Pri
ce
Intel vs VanEck Vectors Semiconductor ETF
Intel VanEck Vectors Semiconductor ETF
Page 26
VanEck Vectors Semiconductor ETF (NYSE.SMH)
• Tracks the MVIS US Listed Semiconductor
25 Index, which follows the overall
performance of the semiconductor
industry.
• Top 10 holdings includes several industry
leaders such as Intel, TSMC and
Qualcomm.
• Provides low cost, diversified exposure to
the semiconductor industry.
Top 10 Holdings Weighting (%)
Intel 12.06
TSMC 9.48
Qualcomm 7.06
Texas Instruments 5.82
Nvidia 5.70
Broadcom 5.17
Asml Holdings 5.05
Applied Materials 4.64
Lam Research 4.55
Micron 4.43
Top 10 Total Weighting 63.96
Expense Ratio 0.35%
90 Day Average Daily Volume 6.4 million
3 Year Tracking Difference 0.11%
Assets Under ManagementUSD 890
million
Source: Bloomberg
Data as of 30 Apr 2019
Source: Bloomberg, VanEck
Data as of 30 Apr 2019
Page 27
Image Credits: blog.semi.org
Page 28
Thank You
Page 29
Disclaimer
All material and content are strictly for informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the funds or products found in this presentation. While iFAST Financial Pte Ltd ("IFPL") has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies and typographical errors. Any opinion or estimate contained in this presentation is made on a general basis and neither IFPL nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objective, financial situation or particular need of any user or reader, any specific person or group of persons. You should consider carefully if the products you are going to purchase are suitable for your investment objective, investment experience, risk tolerance and other personal circumstances. If you are uncertain about the suitability of the investment product, please seek advice from a financial adviser, before making a decision to purchase the investment product. Past performance is not indicative of future performance. The value of the unit trusts and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our full disclaimer in the website.