Gartner: Intel Leads Difficult Semiconductor Market

The contraction in the PC market and the uncertain global economy are continuing to conspire to drive down revenue in the worldwide semiconductor market, according to analysts at Gartner.

According to numbers released on 17 December by the research firm, revenues in the semiconductor space were $298 billion (£184bn) in 2012, a 3 percent drop from the $307 billion generated last year. The 2012 numbers were less than what the analysts expected earlier this year, when Gartner projected that slow growth in the first half of 2012 would give way to improvements in the second half and a recovery in 2013.

PC market decline

However, orders were lower than normal in the third quarter, and projections for the fourth quarter also call for declines. The PC market showed some of the sharpest declines, though even the smartphone segment – which was still driving revenue – is not immune to outside issues, according to Steve Ohr, research director at Gartner.

“Uncertainty about the state of the macroeconomy, coupled with ongoing inventory overhang, sent ripples through the semiconductor industry,” Ohr said in a statement. “The hardest-hit areas include the PC supply chain, memory, analog and discrete components. The PC business, ordinarily a growth driver, was on a negative slope for the first time in many years. PC production declined 2.5 percent in 2012. Even the smartphone juggernaut had begun to show signs of maturing, though it remained the strongest driver for revenue growth in 2012.”

PC sales worldwide have been slowing for more than a year, due in large part to the troubled global economy and the growing adoption of mobile computing devices, in particular smartphones and tablets.

Both Gartner and IDC found that revenues in the space declined between 8 and 9 percent in the third quarter, and tech vendors tied to the PC industry – including chip makers Intel and AMD, and OEMs such as Dell and Hewlett-Packard – are taking a financial hit while trying to rapidly expand into new growth areas and reduce their reliance on PCs.

According to Gartner, Intel continues to be the top semiconductor vendor, with estimated revenues of $49.3 billion this year and a 16.6 percent market share. However, the revenues are 2.7 percent less than the company generated in 2011, though Intel’s market share grew.

Semiconductor market shrinks

In all, eight of the top 10 semiconductor vendors – including Samsung Electronics, Texas Instruments and Toshiba – saw revenues decline by between 2.7 percent and 13.7 percent. Only Qualcomm, with 29.8 percent growth, and Broadcom, with 8.8 percent growth, saw a rise in revenues, according to Gartner.

Qualcomm’s revenue increase – from almost $10 billion last year to almost $13 billion this year – was enough to give the company a market share of 4.4 percent, and jump it from number six on the list to number three.

Qualcomm was helped along by the continued adoption of smartphones and the rise of 3G and 4G Long Term Evolution (LTE) technology in such emerging markets at China and India, the analysts said. Broadcom was helped by its acquisition of NetLogic Microsystems for $3.7 billion in September, and in-house growth in its Mobile and Wireless division.

Memory makers were hit the hardest, according to the Gartner analysts, a trend that was seen in companies such as Samsung, which was hurt in its dynamic RAM (DRAM) and NAND flash businesses, as well as its system integrated circuit numbers.

Overall, DRAM makers saw prices drop rapidly, and the NAND flash segment also experienced price drops.

Market turmoil to continue

However, Gartner analysts are predicting $311 billion in semiconductor revenues in 2013, which would be a 4.5 percent increase from this year. Still, Peter Middleton, a principal analyst at Gartner, said the issues that roiled the market in 2012 could continue to impact the market as it goes into 2013.

“The looming fiscal cliff, ongoing European debt crisis, slower emerging market growth and regional tensions have all played a part in reduced growth projections for semiconductor revenue in both 2012 and 2013,” Middleton said in a statement. “Inventory levels were already high at the start of the second half of 2012, and as PC demand rolled off, supply simply overshot demand.”

The PC market will remain an issue, according to Gartner. Production fell 2.5 percent last year, and will continue to be weak heading into 2013. That said, ultramobile PCs – such as the Ultrabooks championed by Intel – while a smart part of the market, will see strong growth. In addition, production of tablets will jump by 38.5 percent in 2013, to 207.1 million units, thanks to the popularity of Apple’s iPad Mini, Amazon’s Kindle Fire and Google’s Nexus 7 devices. White-box makers also are seeing strong demand.

DRAM recovery

The overall mobile phone market will continue to soften, with the economy driving down demand for devices, the analysts said. However, entry-level smartphones – particularly those based on Google’s Android operating system – will see continued growth in emerging markets. Globally, smartphone unit production is expected to grow 33 percent, according to Gartner.

In the memory space, the DRAM market won’t recover from the slump until the second half of 2013. When that happens, it will help drive the entire semiconductor market into 2014, the analysts said. Memory revenues will grow 15.3 percent, with semiconductor revenue jumping to $342 billion in 2014.

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Originally published on eWeek.