The Top 10 Semiconductor Stocks of 2011

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It's been a miserable year for semiconductor investors. The cyclical industry is prone to swings and wild overcorrections in both positive and negative directions. Still, if you're a longtime veteran of the industry, it's been far worse: 2011 wasn't nearly as bad as late 2001, when semiconductor spending dipped more than 40% year over year. Nor was it as bad as early 2009, when year-over-year spending sank 30% from the previous year.

Overall, semiconductor sales are expected to grow 1.3% this year according to industry association WSTS. That'd mark the first time semiconductor sales surpass $300 billion annually, but it'd also represent a below-average growth rate. More importantly, it'd mean that semiconductor sales are the weakest of any technology subsector. Since technology in general underperformed other sectors this year, that's a recipe for steep losses.

And the steep losses rained down on the sector after a promising start to the year. The Philadelphia Semiconductor Index -- a rough proxy for the industry -- is off 11.9% on the year, far worse than the Nasdaq's 2.4% decline.

However, amid the carnage there were some winners in the sector. Here's a rundown of the top 10 performers in the semiconductor industry, and a brief look at why they're succeeding amid a struggling industry.

Company Name

Market Cap (Millions)

Percent Return in 2011

Silicon Motion Technology (NAS: SIMO) $631.3380.2%
NetLogic Microsystems$3,443.057.5%
CEVA$697.244.5%
Advanced Analogic Technologies$255.343.9%
ARM Holdings (NAS: ARMH) $12,271.239.4%
Mellanox Technologies$1,269.923.3%
Intel (NAS: INTC) $123,353.719.3%
Taiwan Semiconductor Manufacturing (NYS: TSM) $64,559.116.2%
Maxim Integrated Products$7,596.214.1%
Spreadtrum Communications (NAS: SPRD) $1,004.113.2%

Source: S&P Capital IQ. Results are adjusted for dividends.

Silicon Motion
Silicon Motion stands head and shoulders above its peers. The small chip company specializes in flash memory and mobile communications, two areas seeing outsized growth. However, many other semiconductor firms specializing in those areas were hammered in 2011. Having a growing end market alone doesn't explain the company's success.

Silicon Motion provides NAND flash controllers, rather than the commoditized raw flash memory. With innovative technology, that can be an attractive market, as evidenced by Apple's (NAS: AAPL) reported $400 million to $500 million purchase of Anobit. Speaking of which, Apple's buy will mean that Anobit becomes a captive supplier to Apple, meaning that more business from the likes of Hynix and Micron (NAS: MU) could be coming Silicon Motion's way.

Processors
Looking further down the list, we see both ARM Holdings and Intel. That might seem contradictory, since ARM-licensed mobile processors are seen as the major threat to Intel. However, with Intel seeing success in emerging markets and its data-center group, the semiconductor behemoth has managed to see its share price rise even as it found little traction in the mobile arena.

The king of capital-intensive
Finally, near the bottom of the list we find Taiwan Semiconductor, a company I've called "the chip stock to buy today." As jumps in semiconductor technology become prohibitively expensive and more companies go fabless to reduce their capital costs, it increasingly leaves Taiwan Semi as the 800-pound manufacturing gorilla in the industry.

One more stock to consider
If you're hoping for quick salvation from the semiconductor industry, it probably won't come in 2012. Growth is expected to clock in at about 2.6%, once again well below other areas of technology.

If you're looking for another idea from a company with far greater growth prospects, The Motley Fool has created a brand-new free report: "The Motley Fool's Top Stock for 2012." It features a company hand-selected by the Fool's chief investment officer that has a strong future ahead of it. I invite you to take a copy, free for a limited time. Get access to the report and find out the name of this legendary company.

At the time this article was published Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of Intel and Apple and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Apple and Intel and creating bull call spread positions in Apple and Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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