The industry this year was stunted by slow global economic growth, reduced consumer demand, and supply-chain disruptions due to the Japanese earthquake and tsunami. Industry revenue was down 2.5 percentage points in the second quarter, mostly due to Japanese semiconductor companies that suffered facility damage.
While the industry's third-quarter performance was weaker than predicted, it was an improvement over previous quarter numbers. According to estimates released Nov. 17 by market researcher IHS iSuppli, semiconductor industry revenue in the third quarter grew by 3.5% to just over $78.5 billion.
Forecasts for the next two years offer an even brighter outlook.
The Semiconductor Intelligence blog compiled forecasts from eight industry research organizations and found growth estimates for 2012 ranging from 4.0% to 10.4%.
Industry executives expressed similar optimism at an investor conference Nov. 15 in Barcelona, Spain. They forecast a "return to normal business conditions in the second quarter of 2012," once inventories of unsold chips stemming from the slowdown in consumer spending are cleared.
And IHS predicted a much stronger growth rebound in 2013.
Intel Corp. (Nasdaq: INTC) President and Chief Executive Officer Paul Otellini said that, while economic conditions and consumer demand will always be a factor, innovation is driving renewed growth in the semiconductor industry.
"Computing is in a constant state of evolution," Otellini told this fall's Intel Developer Forum in San Francisco. "The unprecedented demand for computing from the client devices to the cloud is creating significant opportunity for the industry."
Investing in the Semiconductor IndustryWhile the semiconductor industry's top performers have shown modest gains from a year ago - Intel's 14.3% rise being one example - bigger declines elsewhere have offset the winners. That inconsistency within the broad semiconductor sector - Google Finance lists 189 companies on its industry roster, divided into roughly a dozen subsectors - is why some chip stock investors are frustrated.
The good news for investors is there's an increasing need for semiconductor companies that's not going away. Chips are now essential to virtually every product that uses power, from mainframes, PCs and laptops to TV sets, video-game consoles and mobile phones. Without chips, modern cars won't run, airplanes can't fly and many now-routine medical procedures would be impossible.
The key for investors is to focus on companies in the most in-demand subsectors, as well as industry leaders best positioned to profit from renewed growth in 2012 and 2013.