What's The Real Future For Semiconductors In Wearables?

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Includes: ADI, AVGO, FSL, INVN, MXIM, NXPI, ON, QCOM, STM, TXN
by: Robert Castellano

Summary

The healthcare industry is one of the biggest opportunities for wearables.

Sales of wearables that are merely a WOW factor will level off over the next few years.

Semiconductor revenues will reach $9 billion in 2019, led by wearable devices in the healthcare sector.

Last week, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) decided to drop its $1,500 Google Glass. Nike (NYSE:NKE) had already announced that it had decided to stop making its FuelBand, a wearable fitness device. Both Qualcomm (NASDAQ:QCOM) and Pebble dropped prices of its smartwatches. Now according to analyst Abhey Lamba of Mizuho Securities,

Additionally, our checks indicate that Apple (NASDAQ:AAPL) Watch sales could be disappointing and other categories are unlikely to offset the slowdown in iPhone sales creating pressure on out-year estimates.

Our latest report "Wearables: Electronics and Semiconductor Markets," notes that so far, most of the wearable devices we have seen have been gimmicks and are likely to be transient.

The research projects that the wearable market will bifurcate into two camps. Those with a WOW factor will falter and go the way of the tablet, which we forecast to exhibit flat sales over the next several years. These devices include wearable cameras and sports/activity trackers.

However, the other camp of wearables will grow strongly, focusing on the healthcare industry and smartwatches. The healthcare industry is one of the biggest opportunities for wearables, which will be used to provide data management and display systems, enabling doctors to handle the flood of electronic health data and access it when they need it - while examining a patient.

To attain mass-market adoption, wearables need to be essential and work as standalones. Because of the duplicity of functions on wearables and smartphones, wearable computing will ultimately cannibalize the smartphone market.

According to the report, semiconductor revenues will reach $9 billion in 2019, led by wearable devices in the healthcare sector. High end connectivity devices for WiFi, Bluetooth and Near Field Communications will lead the market in 2019, followed closely by CPU devices, which together make up more than 50% of the market.

Healthcare wearable devices will account for nearly 50% of the $9 billion market. Semiconductors for smart glasses will account for 25% of the market. The reminder of the semiconductor market, in decreasing semiconductor content, will be for wearable devices for smart watches, wearable cameras, sports/activity trackers, smart clothing, and 3D motion trackers.

The semiconductor market will exhibit a compound annual growth (CAGR) of 30% between 2015 and 2019. 3D wearable trackers will grow the fastest, at a CAGR of more than 60%.

According to Credit Suisse in a May 2013 equity research report, potential key players in the semiconductor market for wearables are: Analog Devices (NASDAQ:ADI), Broadcom (BRCM), Fairchild Semiconductor (FCS), Freescale Semiconductor(NYSE:FSL), Invensense (NYSE:INVN), Maxim Integrated Products (NASDAQ:MXIM), NXP Semiconductors (NASDAQ:NXPI). On Semiconductor (ONNN), STMicroelectronics (NYSE:STM) and Texas Instruments (NYSE:TXN).

In summary, the wearable market will be strong, although some products will show initial strong growth and then falter. Semiconductor sales will be strong because of the plethora of MEMs devices, sensors, CPUs and low-power MPUs, GPS and connectivity chips that are used to make them. However, since wearables duplicate the functions of smartphones, we will see a cannibalization of smartphone sales.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.