While the UK semiconductor industry is only a few years old, it is already looking to become a fast ...
While the UK semiconductor industry is only a few years old, it is already looking to become a fast growing sector of the domestic economy.
Although the Far East is better known for its semiconductor industry, it is based on the manufacturing and production side of the business. UK companies deal with the research and development, of products says Nigel Thomas, UK Growth fund manager at ABN Amro.
He adds: "In the UK, it is not about fabrication or manufacturing but more intellectual property rights, which means companies here have lower overheads.
"While the industry has been growing for some time it has only been in recent years that we have had quoted companies."
Tim Dainton, fund manager at Gartmore, says most of the sales in quoted UK semiconductor firms are made up of chips for PCs and mobile phones. Networking and automotive semiconductors hold around 5% of the market.
According to Nick Irish, global technology analyst at Schroders, the wireless area has been the fastest growing part of the sector over the past three to five years.
While intellectual property rights are somewhat insulated from competition, income is affected by changes in the underlying semiconductor industry.
At a time when the industry is growing rapidly due to high mobile phone demand, the pace is predicted to slow in 2001. Irish says growth in mobile handsets from 1999 to 2000 reached 60% but by 2001 is likely to fall to around 30-35%.
Major UK semiconductor companies include Arm Holdings, Bookham, Imagination technology, and Parthus.
Arm, which supplies chips for around 80% of the world's mobile phones, holds a solid revenue base. As the market has grown it has taken advantage and built a significant market share from its competitors, says Irish. Around three years ago it supplied only 20% of the world's mobiles.
Dainton says: "Arm has made the mobile market its own. It is virtually the market standard, which is no small feat for a small UK company."
Bookham supplies optical components going into fibre optic communications networks. Irish says as individuals and corporate data needs have exploded, telecoms have had to increase available capacity and they have built-up fibre optic networks, of which Bookham makes a tiny but valuable contribution.
One of the older UK semiconductor companies is Imagination, which produces and sells graphic chips into the PC and games console market. The outlook for the company continues to be positive due to its high level of research and development.
Parthus is another pure UK semiconductor play which depends on its intellectual property and is at an earlier stage of development to companies like Arm, says Dainton. It recently came to an agreement with Arm to produce and incorporate global positioning system technology (GPS) within Arm core products.
The UK semiconductor market is also expected to expand in the coming months, Thomas says, with two new companies looking to float this autumn. He says: "The market looks set to continue to grow and our outlook is favourable."
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