Economics of Semiconductor Business – Uniqueness

For any business reinvestment will be primarily in form of Capex (Capital Expenditure) or R & D (Research and Development). These two are major drivers of business.

Business Driven by high Reinvestment into Capex

Major Business Like Power and Utilities have high reinvestment in Capex. Utilities Business reinvests 25% of revenue in Capex, while Power reinvests 21% revenue back.

Semiconductor industry invests whopping 26% of revenue in Capex. Thus its a Capital driven industry.

Business Driven by high Reinvestment into R&D

Business requiring constant innovation and which faces new challenge invest high on R&D. Best examples are the Pharmaceuticals and Software Industry. They reinvest 21% and 14% of revenue in R&D respectively.

Semiconductor industry invests whopping 22% of revenue back in R&D. This is because its a highly evolving industry.

Semiconductor Business –

Thus when we analyze the semiconductor industry we see that it is very unique, falling in both capital intensive and R&D intensive industry. It ranks higher than Pharma in R&D and higher than Power, Utilities in Capex. Thus we see that in both these categories around 48% of capital is invested back.

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