If you think that the semiconductor industry’s poor performance in 2012 is solely due to depressed economic conditions, think again.
A lack of innovation in the PC market could have more to do with sluggish chip revenues than any economic slowdown, and the numbers reflect this dilemma. The latest figures from IHS show that the research firm is downgrading its forecast for the global semiconductor market in 2012 and now expects revenue to decline by 2.3 percent this year.
According to IHS estimates:
Worldwide chip sales are expected to decrease to $303 billion in 2012, down from $310 billion in 2011, according to preliminary results from the IHS iSuppli Competitive Landscaping Tool (CLT) and Application Market Forecast Tool (AMFT) from information and analytics provider IHS (NYSE: IHS).
The newly adjusted figure shows a steeper descent compared to the 0.1 percent retreat first projected in the previous August AMFT forecast and the 1.7 percent decline forecast in the September AMFT. Even so, the prognosis remains the same: This will mark the first annual decline for the global semiconductor industry since 2009.
Analysts at IHS say the downgrade is due to weak economic conditions that have stalled business spending on electronics, but a deeper dive into the numbers reveals that even with a sluggish economy, spending on tablets and smartphones is strong, leading IHS analysts to note that the only application market forecast to grow this year is wireless semiconductors, which have benefited from innovative product introductions.
“The surge in popularity of smartphones and media tablets is driving healthy growth in the overall wireless semiconductor market segment in 2012 with a projected 7.7 percent expansion,” Dale Ford, senior director, electronics and semiconductor research for IHS, said in a statement “However, all of the other end markets for semiconductors will see revenues fall in 2012, negating all the positive effects of the wireless segment.”
One of the main drivers of mobile device sales is the attractiveness of Apple Inc. products. Whether it be the iPhone 5, with its larger display, faster chip, or 8MP iSight camera, or the introduction of the iPad mini, Apple has stayed ahead of the curve while offering competitive prices. The company’s ability to provide new innovative features has grabbed the public’s attention and their pocket books, despite the jobless numbers and a weak economy.
On the other hand, PC innovation tells a different story. No one is lining up to buy a notebook, a desktop, or a laptop. We’ve seen how slower PC sales have negatively affected chip makers like Intel and Advanced Micro Devices, which in recent quarters have suffered a decline in revenues.
In an interview, Ford agreed with me that innovation and price points are a challenge for PC makers, and he said “certainly a notebook PC looks very similar now than what a notebook PC looked like 8 years ago.”
In as much as the numbers reflect a slow economy, they also expose an obvious innovation gap. According to IHS:
The PC-dominated data processing segment -- the largest semiconductor application market -- is on track to plunge by 7.8 percent this year. Global PC shipments will shrink in 2012 for the first time in 11 years, due to a combination of economic factors and competition with new platforms, including media tablets.
Tied to the PC slowdown is the discrete component market and the combined memory markets, which are forecast to suffer revenue declines of 10.6 percent and 10.7 percent respectively.
With the withdrawal of Texas Instruments Inc. from the wireless baseband market, digital signal processors (DSPs) are expected to experience a staggering 30.9 percent plunge in revenue this year.
Other areas of the chip market feared better. The estimated annual growth for the CMOS image sensor market is 31.8 percent. LEDs will experience a double-digit revenue increases at 17.5 percent, and the application-specific logic ICs market will grow by 5.6 percent and the sensors market will experience 4 percent annual growth.
Looking ahead to 2013, IHS predicts that the semiconductor industry will experience a revival that will be driven by an improving economic picture.
One year ago, IHS predicted that “Any type of meaningful rebound in revenue growth is not expected to take place until 2013.” The IHS iSuppli preliminary AMFT predicts semiconductor revenue will expand by 8.2 percent in 2013 if the small improvement in worldwide GDP growth forecast for 2013 holds up.
I don’t believe that an improving economy will necessarily increase PC sales. In fact, it is entirely possible that if the economy improves, we may see even more tablet purchases instead of PCs. The bottom line is that consumers need a reason to buy computer products, and if PCs lack an attractive form factor, features, and price tag, then PCs will not be able to compete in a changing and dynamic market. 2013 promises to be a very interesting year.