For most of August the big news on the chip front was analyst IHS´s predication that pure-play chip foundry business would climb more than a fifth (21 percent), based on Apple's move away from Samsung as a sole supplier. However, it's not necessarily so simple.
Samsung, the apparent loser in the Apple move, holds the unusual position of being both a massive demand-side force in the chip market, and supply-side behemoth — even with Apple's move. What remains unknown is what the overall chip market is right now. Further, no one knows how Apple's move will affect both that market, and the frenemy-esque relationship between the Korean giant and Cupertino.
IHS, the source of all this noise, was also the source of a finding three weeks ago that the overall chip market would finally grow this year after a flat 2012. The estimate was a little over four percent, which is not roaring, but the news was well received anyway. The important part of that number, in turn, was that it is four percent of an estimated total available market (TAM) for chips, of a little more than a quarter trillion dollars. (Yes, that's trillion, with a t . The precise call was $254 trillion in chip business.)
But (and there is always a but), IHS also noted that the TAM included internal chip sales. For a company like Samsung, that's important. The company's chip foundry capacity means it can supply itself, where it can't find a better deal in the existing supply chain.
If you take the internal supply out of the number, a cool 15 billion dollars falls off the table, and with it, most of that four percent growth. IHS argues that its figures show a likely jump in available market again in 2014 and 2015 of about $30 billion. But it also argues that the non-internal number, the Shared Available Market (SAM), is probably the better gauge, compared to TAM.
“Companies or expenditure segments tracked by their SAM levels yield a more accurate picture of their net spend, which does not include internally sourced products that could be classified as intersegment sales,” IHS said in a press release.
Let's get back to the big August news, Apple's move. What does the wrangling over available chip market mean to the foundry market? There are a couple potential elements to this debate. First, it probably re-jiggers Samsung's calculations around acting as a foundry for its own internal divisions. Most of the focus on the big Apple news has been on the opportunities it creates, and the likely pure-play actors who will jockey for those contracts. However, it also stands to change Samsung's math, and the manner in which we estimate a fundamental measure of a fundamental market — chip sales — considerably.
Further, taking Apple's orders off the ledger changes Samsung's own foundry business enough that it could affect the company's internal supply chain. No one yet knows how, and even if the company will, count it. That's a huge variable. Apple's key rival, and former supplier, needs to decide how its own foundries will respond to a market in which they are playing both supplier and OEM.