Press Release

Chipmakers Hold Little Hope For A Fourth Quarter Recovery


October 24th, 2012

Global Information Inc. would like to present a new market research report, "2013 Semiconductor Market Tracker" by Databeans, Inc..

After poor results for the general semiconductor market during the third quarter of 2012, most major chip suppliers are now expecting that the final quarter of the year will do little to salvage the total results for the entire year. For example, Intel, the worlds top chipmaker by revenue and bellwether for the traditional PC market, has recently forecasted that its company revenue for the fourth quarter would come in at $13.6 billion or over $1 billion less than it had previously expected only a few months ago. The firm cited that demand, particularly among enterprises and consumers in emerging regions, was much weaker than it had expected. Intel also went on to say that it saw many hardware makers reduce their chip inventories during the third quarter, which is surprising as this is typically a time they would seek to expand them, especially with the high-profile new Windows 8 OS on the way.

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Furthermore, Intels weak Q4 outlook has dispelled any remaining hope that the traditional PC market will receive a sudden boost in demand before the end of the year. Intels results can also be attributed to weaker than expected Ultrabook sales. Ultrabooks, which were touted as high-end PC alternatives to tablets, have failed to live up to expectations thus far, most likely due to their high-price tags and lack of consumer visibility.

Intel has not been the only player affected by the weak PC market. U.S.-based DRAM maker Micron, for example, has been affected by a global memory market that is currently in the midst of an excess supply environment resulting from tough macroeconomic conditions. Micron, which posted its FY Q4 2012 in late September, witnessed a 10 percent decline in net revenues. In particular, Microns fiscal 2012 DRAM revenue fell by 12 percent. However, the firm did see a 14 percent increase in NAND Flash revenue, illustrating the gradual shift that memory players are taking away from DRAM and towards higher margin Flash memory revenues.

Similarly, South Koreas Samsung, the world leader in memory by share, also saw declines in its memory business during the third quarter, with DRAM sales falling 14 percent in Q3 from the prior quarter. Although strong handset sales, particularly for the new Galaxy S3, made up for reduced profits from its chip business, Samsung expects that its fourth quarter results will come in even weaker than in Q3. Going forward, Samsung is expected to invest less in its chip business due to the drop in demand experienced over the past few quarters. Furthermore, Samsung will have to deal with declining chip orders from its number one customer and chief OEM rival, Apple. For one, Apple did not use Samsung to design the A6 processor used in the iPhone 5, and instead tapped Samsung strictly as a foundry to manufacture the chips, according to Samsung. Heading into next year, Apple is expected to lessen its reliance on Samsung even further for its chip supply, instead broadening its supply chain with partnerships with foundries such as TSMC.

Another major player, Texas Instruments, a leader in analog chips and embedded processors, is expected to see a slight decline in sales from Q3 as well, and should report worldwide sales of about $3.2 billion for Q4. This is the result of weak consumer demand, but also continued declines in the companys baseband division and its struggles to remain competitive in the application processor market against established competitors such as Qualcomm. In particular, the companys signature OMAP processor line has had difficulty remaining relevant in the wireless market, and as a result, the firm recently announced that it would attempt to broaden the reach of its OMAP products, instead aiming at embedded applications in automotive, industrial, robotics, and enterprise communication. Finally, TI has had difficulty keeping its factory utilization rates high. With the acquisitions of fabs and equipment from National Semiconductor, as well as some other companies over the past few years, combined with the slowdown in semiconductor demand, TIs additional manufacturing capacity has led to lower factory utilization, which in turn has affected the companys gross margins.

These previous expectations were largely in line with those from other players including the likes of Infineon, Fairchild Semiconductor, and Linear Technology, all of which expect weaker Q4 sales after a poor Q3. While the aforementioned expectations represent just a sample of some of the players in the semiconductor industry, it still represents an undeniable belief that Q4 will not provide much of an improvement before the years end. As a result, year-over-year sales growth for the entire chip industry should remain flat. However, Databeans projects that chip sales should pick up starting in 2013 with the return of consumer demand and a corresponding increase in orders from OEMs.


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