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Chip Slump: Don’t Blame the Economy

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.

21 comments on “Chip Slump: Don’t Blame the Economy

  1. SP
    December 8, 2012

    When a person buys a PC or laptop or notebook, he/she buys it keeping in mind to use it forever unless it breaks down and there is no other option but to buy a new one which is hardly the case. So the next sale is for the same consumer is hardly there. But in case of phones and other consumer stuff people get tempted to buy a new one as soon as something more exciting is in the market. Also in the case of laptop or PC you have all your data in that and no one wants extra work. BUt in case of phones you just take along your address book and you are ready to go to next phone.

  2. t.alex
    December 9, 2012

    The only types of notebooks people are still excited about are perhaps the Macbook. Retina display; as thin as possible; etc. and with the latest OS from Apple, iPhone, iPad and macbook integration provides users such a great experience.

  3. Adeniji Kayode
    December 9, 2012

    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.

    I agree with this statement, the issue of tablets to PC is becoming an generational thing.

    consumers some how believe that if you truly belong to this generation, you must have at least one of these tablets or smart devices

  4. Adeniji Kayode
    December 9, 2012

    Somehow Apple really took the world with so much excellence and innovations so much that it seems it never met any other manufacturer in market.

  5. Adeniji Kayode
    December 9, 2012

    @Sp,

    Probably that is because laptops are made with much processing ability and storage that somehow last enough till you decide to change it.

    moreso, in laptops, you don,t really have all-new- features being added often unlike phone that keeps coming out with better features day by day.

  6. t.alex
    December 10, 2012

    I know a lot of people using macbook but they install Microsoft windows instead 🙂 the hardware is so great.

  7. Ariella
    December 10, 2012

    @t.alex You and they must not be true Apple fans. That's OK with me, I only use a PC myself.

  8. Wale Bakare
    December 10, 2012

    In recent times the only device majority of people known as computing system – PC. Today, becoming part of our lives to make every electronics device intelligent system, especially miniaturized ones. Even those who do not know how to use computer system could surf the web easily without needing for a PC.

  9. The Source
    December 10, 2012

     

    Adeniji Kayode,

    Here's another story regarding AMD and its challenges with slower PC sales.   Apparently, AMD is ordering less chips from its foundry partner Globalfoundries.

    http://www.techweekeurope.co.uk/news/amd-slashes-chip-orders-as-pc-sales-slow-101410

    Thanks for your comments.

    Nicole

     

  10. bolaji ojo
    December 10, 2012

    What markets did semiconductor companies sell products to before PCs and before smartphones? These are today the two main drivers of chip sales but they won't necessarily be the only markets that will continue to dominate the segment. For now, OEMs can't see beyond their noses. They continue to milk the PC and smartphone cows and because of the returns and volume of shipment, they don't seem to be tapping other markets. And the OEMs oblige them because they lack generally innovation. I mean, beyond PCs and phones, what else in electronics have taken our fancy so much?

    Eventually, the PC and smartphone markets will run their course and some smart firms will come up with something else that will need bucketloads of chips. Then, chips vendors will smile again.

  11. bolaji ojo
    December 10, 2012

    AMD isn't the company it was years ago when Intel saw it as a major competitor. That AMD is gone. The AMD around today isn't a threat to Intel or any chip vendor.

  12. _hm
    December 11, 2012

    Auto industry now employs substaintial electronics parts. Will it help improve semiconductor sales? Much innovation scope is present in this field. Apple and Google sholud explore this field too.

  13. SP
    December 11, 2012

    Auto industry and consumer electronics industry are very different. The protocol and standard used are different. The rate at which consumer electronics products changes is quite fast as compared to auto. Both use different chips.

  14. The Source
    December 11, 2012

    _hm,

    IHS said it also expects the automotive semiconductor market to decline in revenues in 2012 .

    Thanks for your comments.

    Nicole

     

  15. t.alex
    December 12, 2012

    PC market margin has long been razor thin, and so the OEM will also press the price down for semiconductor companies. The good thing is quantities are large. I believe the same is also happening for smartphone. I think another segment semiconductor has been focusing on is consumer electronics or home appliances. The trend is more and more products are 'digitised' to be controlled by smart processors and so they would need more IC into the design.

  16. The Source
    December 12, 2012

    Dear Bolaji,

    I remember those days well. AMD was a major competitor to Intel.   Now AMD is struggling to find new technology that it hopes will be snapped up by new customers. However, right now this is not happening. A recent article in Reuters indicates that AMD has turned to JPMorgan Chase & Co. to explore its options as the company seeks to turn its fortunes around. One wonders if that's possible, but stranger things have happened. Here's a link to the Reuters story :

    http://www.reuters.com/article/2012/11/13/us-amd-jpmorgan-idUSBRE8AC14Z20121113

  17. The Source
    December 12, 2012

    Hi Wale,

    Yes, first we had PC's and now we have tablets and smartphones.  The question is what will the next new product be? I see that Apple is looking at the TV business, and you bet it will be a TV/computer combination.  Let's see what that does for the chip market.

    Thanks for your comments.

    Nicole

  18. Ariella
    December 12, 2012

    @Nicole in that case, given the advances in mobile technology,  I would bet on a mobile device that combines TV and a computer. 

  19. The Source
    December 13, 2012

    Ariella, 

    You're absolutely correct.   We can't leave out mobile devices and I'm sure Apple will be working to seamlessly integrate its laptops, phones, tablets and TVs, which will provide consumers with a new and captivating experience.   I wonder how the competition will react to that? 

    Thanks for your comments. 

    Nicole 

  20. Wale Bakare
    December 13, 2012

    >>Let's see what that does for the chip market< <

    It is very difficult to predict which next new product. I am not really sure about TV/computer but one thing is certain – software and emerging materials ( i.e may be nanothechnology) might play major role to new products.

  21. Wale Bakare
    December 13, 2012

    >>Let's see what that does for the chip market< <

    It is very difficult to predict which next new product. I am not really sure about TV/computer but one thing is certain – software and emerging materials ( i.e may be nanothechnology) might play major role to new products.

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