By Dominic Fracassa, San Francisco Chronicle
They may not enjoy the splashy public profiles of their software and social media neighbors, but the companies that put the silicon in Silicon Valley quietly enjoyed a banner year in 2016, posting outsize stock-price gains that dwarfed many of the tech industry’s more recognizable names.
And many semiconductor industry analysts expect the good times to keep rolling through 2017.
Spurred by the broader stock market’s bullish end to 2016, industry consolidation and the emergence of new silicon-intensive markets like driverless cars and artificial intelligence, semiconductor companies and optical equipment makers recorded the highest total returns to shareholders in 2016, according to a Chronicle analysis of Bloomberg data that considers share performance as well as dividends.
Among Bloomberg’s index of Bay Area companies, the three largest gains in stock value last year came from semiconductor maker Advanced Micro Devices, graphics processor developer Nvidia and optical equipment maker Oclaro.
AMD’s stock ended 2016 up 295 percent from where it ended 2015. Nvidia returned nearly 227 percent. Oclaro’s share price recorded a 157 percent gain.
“Semiconductors as an industry outperformed the S&P 500 by almost 30 percent in 2016,” said Timothy Arcuri, a semiconductor industry analyst with Cowen & Co. In the past 25 years, in terms of outperforming the broader markets, Arcuri said, “the only better years were 1999, 2003 and 2009.”
Part of the growth can be attributed to a wave of consolidation that swept across the semiconductor industry the past two years. For example, Intersil, a Milpitas company that posted the largest semiconductor IPO at the time in 2000, announced in September that it was being acquired by Renesas Electronics Corp. of Japan. Intersil’s stock price soared 81 percent last year.
In total, there were were 10 acquisitions of semiconductor companies in 2016, and 16 in 2015. There will be more activity this year, said Raman Chitkara, a partner at PricewaterhouseCoopers.
“The current expectation is that the momentum will carry forward because the consolidation wave is not done yet,” he said.
The industry’s growth last year came as part of the continued strength of the overall stock market. The Dow Jones industrial average narrowly missed hitting the 20,000 milestone on Friday.
“The more money people have in their pockets, the more consumer electronics they go out and buy, and the more silicon that gets consumed,” Arcuri said.
New technologies like virtual reality and driverless cars will also increase demand for hardware.
Analysts have pegged AMD’s growth to a slate of new microprocessors and computer graphics processors. At the CES electronics show in Las Vegas last week, the Sunnyvale company introduced two powerful chips that could help the company retake ground ceded to big competitors like Intel over the years. Both are expected to be released in 2017. AMD spokeswoman Sarah Youngbauer said in an email that the company is “excited about our strong long-term road map.”
AMD also scored points with investors after it announced that it would make about $293 million by licensing some of its technology to Chinese ventures. The company’s status as the sole processor provider for the PlayStation and Xbox video game consoles has also inspired confidence.
“We definitely think they’re going to continue to have solid years in 2017 and 2018,” said Betsy Van Hees, an analyst covering AMD for Loop Capital Markets. “I don’t think they’ll replicate the appreciation we saw in the stock in 2016, but clearly it looks like the worst is behind them, and that all the troubles they had are in the rear-view mirror,” she said.
Much of AMD’s recent success with investors has been credited to its president and CEO, Lisa Su, who joined the company in 2014 and has helped reduce AMD’s debt and inch away from its longtime reliance on the PC market.
Nvidia’s remarkable returns this year have come in part by reaping the rewards from its investments in chips for automobiles and artificial intelligence. Demand for chips destined for servers and cars gave rise to a 54 percent increase in sales for Nvidia in the third quarter of 2016.
The Santa Clara company also got a boost in September when it announced it had teamed with Chinese e-commerce giant Baidu to develop the computing system for Baidu’s autonomous car. An Nvidia spokesman declined to comment.
Oclaro CEO Greg Dougherty said his company benefited from the ever-increasing reliance on high-speed communication technologies. The San Jose company specializes in products used to encode and decode information sent across fiber-optic cables, particularly video data.
Demand for faster fiber-optic network speeds in China and large U.S. cities, and the growth of cloud computing were among the biggest reasons for Oclaro’s success, Dougherty said.
“The way video is becoming the primary data that comes across the networks, it requires more and more speed, and that plays directly into the strengths of Oclaro in terms of the high-speed products and solutions we produce,” he said. “We don’t expect that need for speed to abate.”
©2017 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.
