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Show in ( mmm SEMICONDUCTOR PRODUCERS OPTIMISTIC Since the general market retreat in March and early April, the semicon- ductor stocks have made a significant rebound. In part this reflects the overall break-out of the Dow Jones industrial average; but above all, the current strength in the semiconductor group is, in our judgment, indicative of the bright prospects in store beyond the business recession and over the next ten years. The projected growth rate through 1984 spotlights semiconductors whose average annual growth is slated to be over 13 percent in constant dollars. Furthermore, it is anticipated that by the end of this period semiconductors will account for more than 60 percent of the total constant dollar value of all electronic component shipments. The Research Department of Babson's Reports believes that the expanding use of semiconductors should create significant additional new market outlets in the 1980's despite the accelerating ac-celerating inroads by Japan into U.S. and world computer markets. ACQUISITION MOVES NEW EST TWIST The semiconductor industry is now encountering some of the characteristics charac-teristics usually associated with other less dynamic sectors. A growing move toward mergers by the electronics-oriented electronics-oriented industry giants has developed since 1979. Well-diversified firms in need of semiconductor expertise have made acquisitions of such renowned stalwarts as Fairchild Camera and Instrument, Mostek, and Signetics, while major foreign firms have also jumped on ti.o bandwagon, buying sizable controlling interests in U.S. semiconductor makers. In view of the currently prevailing supply and demand imbalance (demand is outstripping supply), as well as the huge growth potential inherent in the semiconductor business, this trend should continue. While we expect that the shortage of some semiconductor circuits will be alleviated somewhat during this business recession, demand should keep on expanding through the 19R0's. NEW TECHNOLOGIES COMING ON STREAM In order to be more competitive, the semiconductor companies are in the process of extensively automating their facilities. New equipment such as the electron beam (E-boami and x-ray lithographic systems are being purchased pur-chased in great quantities. Moreover, the new process for producing very-large-scale integrated circuits requires complete automation in order to avoid defects. Also, the Pentagon is working with U.S. semiconductor companies to develop electronic integrated circuits with 100 times the capacity of today's devices. These circuits are called VHSIC (very high speed integrated circuits) and are expected to generate important commercial spinoff dividends, SH ARP MARKET GROWTH FORECAST Although U.S. semiconductor shipments ship-ments scored an impressive 36 percent increase to $6.61 billion in 1979, integrated in-tegrated circuits achieved an even more impressive advance of 32 percent. Within that sector, digital MOS circuits racked up an- outstanding 55 percent gain. For 19(10, industry producers ore still looking for a commendable overall gain of 26 percent in semiconductors, led by an estimated 32 percent sales increase in the fast-stepping integrated circuits. The Semiconductor Industry Association is projecting a $7.7-billion boost in shipments, outperforming the economy in the new decade; this represents an increase of almost 300 percent to the $30-billion level. RECOMMENDATIONS Because of the good outlook for semiconductors, the Research Department of Hubsnn's Reports is now advising purchase of the common stocks of such well-diversified companies com-panies as General Electric, North American Philis, and RCA, plus the leading semiconductor specialist, Texas Instruments. All arc traded on the New York Stock Exchange. All should prosper from the proliferating advance in technology. |