Will Semiconductor Industry’s Historic Growth Continue?
After a Decade of Unmatched Wealth Creation, Can It Accelerate Value Creation Even Further?
Dear Investors,
The semiconductor industry has made vast profitability gains and has achieved remarkable shareholder returns in recent years!
From 2015 to 2019, the sector delivered an annual average of 25% in total shareholder returns (TRS), with some years seeing returns as high as 50%.
The question is: can it continue its value creation even further?
A Digital Boom and Beyond
In the early 2000s, semiconductor industry’s profitability was limited, with many companies struggling to generate returns above their cost of capital.
The past decade has seen a dramatic shift:
From 2000 to 2004, the industry’s aggregated annual economic profit was just $3.5 billion. By 2016–2020, this figure had surged to $49.3 billion.
The top quintile of companies captured most of this profit growth, underscoring the importance of scale, innovation, and strategic focus.
North America has remained dominant, accounting for 60% of global economic profit due to its leading fabless players. Asia contributes 36%, primarily through contract chip manufacturing hubs like Taiwan and South Korea. Meanwhile, Europe accounts for just 4%, concentrated in capital equipment.
The COVID-19 pandemic accelerated the digitization of economies worldwide, thrusting semiconductors into a central role in economic transformation.
Consolidation across the semiconductor value chain further amplified gains as companies sought scale and efficiency to meet growing demand.
From powering remote work solutions to enabling advancements in healthcare, automotive, industrial sectors and AI, semiconductors has now become indispensable.
Despite challenges such as supply chain disruptions and trade tensions, the industry delivered stellar returns during this period, often achieving high double-digit growth rates.
Capital Markets Reward Performance
Capital markets have rewarded the semiconductor industry’s rapid profitability growth.
Looking ahead, the semiconductor industry's economic profitability has improved relative to others, and this trend is expected to continue in the future.
Today several structural trends are reshaping the semiconductor landscape:
Self-driving cars: Autonomous vehicles require high-performance chips for processing vast amounts of data in real-time.
Artificial Intelligence (AI): AI adoption continues to grow across industries, demanding specialized chips for machine learning and neural networks.
Internet of Things (IoT): The proliferation of connected devices creates demand for efficient and secure semiconductor solutions.
5G and beyond: The rollout of 5G networks is driving investments in infrastructure and devices that rely on cutting-edge chips.
How effectively companies will adapt to an evolving landscape characterized by innovation demands, shifting value pools, and increasing volatility is unknown.
However, I believe the semiconductor industry with profitability at record highs and investor confidence soaring, is well-positioned to accelerate growth further.
Semiconductor leaders (who align their strategies with transformative trends) will continue to capture even more value.
In doing so, they will not only meet but exceed the high expectations of shareholders and stakeholders alike—securing their place as leaders in an increasingly digital world.
Long-term outlook is strong!
Sincerely,
The Pareto Investor