After three years of seeing its dominant position in the global semiconductor market whittled away by aggressive competition from Samsung Electronics Co. Ltd., Intel Corp. is set to reverse the trend in 2011, with a combination of strong sales and an acquisition allowing the company to rebuild its margin of market leadership.
U.S.-based Intel in 2011 is set to sell $49.7 billion worth of semiconductors, up an impressive 23 percent from $40.4 billion in 2010, according to the IHS iSuppli Semiconductor Value Chain Service at information and analysis provider IHS (NYSE: IHS). This will allow Intel to outgrow the overall semiconductor market and boost its share of the market to 15.9 percent, up from 13.2 percent in 2010, as presented in Table 1 below.
With this strong performance, Intel increased its lead over second-ranked Samsung to 6.5 percentage points. The increase ended a three-year period that saw Samsung of South Korea close the gap with Intel from a 6.5 percentage point margin in 2008 to a 3.9 point difference in 2010.
“In a challenging year for the semiconductor market, Intel achieved success on all fronts, expanding its core microprocessor and memory businesses, while also capitalizing on a major acquisition,” said Dale Ford. “This allowed the company to outgrow the market and expand its lead over its closest competitors, defying the impact of weak economic conditions and catastrophic natural disasters in Japan and Thailand.”
Intel in Charge
Intel derives most of its semiconductor revenue from selling microprocessors (MPU) and NAND flash memory—two of the hottest segments of the chip industry in 2011. These areas are set to generate double-digit revenue growth of between 15 and 20 percent this year.
Meanwhile, Intel’s revenue was boosted by its acquisition of Infineon Technologies AG’s wireless solutions business.
Samsung, the world’s leading supplier of NAND, also is benefitting from the growth of this memory segment in 2011. Furthermore, the South Korean electronics giant is posting strong sales growth in other product lines like mobile applications processors, CMOS image sensors and display drivers.
However, Samsung also is the leading supplier of DRAM, which represents a weak segment of the global semiconductor market, with a gut-wrenching 27 percent decline in total market revenue expected this year.
Combined with poor market conditions in other memory segments, this will limit Samsung’s revenue growth to 3 percent in 2011, far less than Intel’s growth.
Acquire and Conquer
Intel isn’t alone in engaging a major purchase this year, with merger and acquisition activity playing a big role in influencing the growth and market share rankings of five of the Top 20 semiconductor suppliers in 2011.
No. 3 Texas Instruments Inc. of the United States in 2011 purchased fellow U.S. supplier National Semiconductor Corp., helping it to rise one rank to supplant Japan’s Toshiba Corp. as the world’s third-largest chip supplier. TI’s revenue is set to increase by a relatively strong 8.4 percent for the year.
U.S.-based Qualcomm Inc. will see its semiconductor revenue jump by an amazing 39.9 percent in 2011, courtesy of an extra boost from its acquisition of Atheros Communications. This will propel Qualcomm up the rankings by three spots, rising to No. 6, up from ninth place in 2010.
However, the biggest jump in rank among in 2011 is expected to be at ON Semiconductor of the United States, which will achieve growth of nearly 50 percent, the highest rate of increase among any Top 20 supplier. ON’s acquisition of Sanyo Semiconductor from Panasonic Corp. of Japan will boost it seven places to No. 19 in the rankings.
Conversely, the sale of Sanyo will contribute to Panasonic’s 32 percent plunge in revenue—causing it to fall by five positions to No. 20.
Bad Memories of 2011
Along with the major decline in DRAM revenue, all other memory segments besides NAND flash are suffering contractions in 2011, adversely impacting semiconductor suppliers that depend on sales of these devices.
Global revenue for EEPROM, SRAM and NOR flash memory all will decline by double-digit percentages this year.
Consequently, some of the biggest decreases will be suffered by memory suppliers, such as No. 8 Hynix Semiconductor Inc. of Korea, No. 9 Micron Technology Inc. of the United States and No. 15 Elpida Memory Inc. of Japan, whose revenue will fall by 14.2 percent, 17.3 percent and 40.2 percent, respectively.
Cold Comfort for Chips
Based on the results of preliminary 2011 market share research from IHS, the forecast for global semiconductor market growth has been raised slightly to 1.9 percent, up from the previous outlook of a 1.2 percent increase.
“In light of the daunting economic challenges and major supply chain disruptions due to natural disasters, it is a real victory for the semiconductor market to still achieve any growth at all in 2011,” Ford noted. Revenue in 2011 is forecast to increase by $5.8 billion to reach $312.8 billion, up from $307 billion in 2010.
To be sure, the Japan disaster in the first quarter of the year played a significant role in shaping the pattern of growth in 2011. But while the negative impact on the supply chain in the second quarter caused revenue to decline, the third-quarter rebound pushed growth above 4 percent, well above prevailing expectations.
Still, extremely weak economic conditions are expected to exert a serious drag on the semiconductor industry in 2012 and result in stagnant growth in the low single-digit range. Any type of meaningful rebound in revenue growth is not expected to take place until 2013.
In spite of the damage to the automotive supply chain wrought by the Japan disaster, semiconductor revenue generated by the global automotive electronics business is expected to grow by a robust 10.6 percent in 2011.
“In response to the Japan disaster, it appears that the automotive industry is taking a defensive position in its management of the supply chain and is maintaining higher levels of inventory than it has traditionally targeted,” Ford said. “This shift in inventory management strategy in the automotive supply chain has added an extra boost to semiconductor revenue in 2011.”
The segment forecast to achieve the highest growth in semiconductor revenue in 2011 is industrial electronics with 10.7 percent growth. Not surprisingly, semiconductors for wireless communications should experience a very healthy year of growth at 8.2 percent due to the popularity of smartphones and media tablets.
On the other hand, the data processing and consumer electronics segments will suffer declines in semiconductor revenue of 2.8 percent and 2.5 percent, respectively. The strong growth in microprocessor revenues is insufficient to offset the crash in DRAM revenue in the data processing segment.
In Other News…
Other notable developments in the 2011 semiconductor rankings include:
- As the company most heavily impacted by the Japan disaster, Japan’s Renesas Electronics Corp. was the only Top 5 supplier to see its revenues fall in 2011. The No. 5-ranked semiconductor supplier will see its revenue decrease by 6.2 percent for the year.
- nVidia Corp. of the United States is forecast to achieve the fourth-strongest performance among the Top 20 with 14.9 percent growth. This will boost it up the rankings by three spots to No. 17.
- Freescale Semiconductor Inc. of the U.S. moves up two positions to No. 14.
- Given all of the major moves among the Top 20 suppliers, only one company is likely to drop out of the Top 20. At this point, IHS iSuppli projects Taiwan’s MediaTek Inc. will slip to No. 22, following a drop in revenue of 15.8 percent.
- Out of 150 leading semiconductor suppliers tracked by IHS on a quarterly basis, nearly 55 percent are expected to achieve positive revenue growth in 2011.
- Only companies headquartered in the Americas region achieved growth as a group in 2011 with a very strong 8.5 percent expansion. Companies headquartered in the other three regions—i.e. Asia-Pacific, Japan and Europe-Middle East-Africa—are expected to see their revenue fall between 3.1 and 5.9 percent in 2011 as a group, as presented in Table 2 below.
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