Year of cautious optimism for semiconductor firms
The semiconductor industry that witnessed a lackluster growth in 2012 is expected to bounce back in 2013 with revenues forecast to increase by 3.5 per cent, according to a recent IDC report. However, researchers also indicate that semiconductor companies have to heavily focus on innovation and address the competitive dynamics of a diverse set of industries they support in order to sustain the growth momentum.
According to the research firm, globally, semiconductor revenues decreased by 2.2 per cent year-over year to $295 billion in 2012. The growth was affected in the second half of 2012 particularly for the IC industry due to the weak consumer and enterprise spending across PCs and mobile phones. Other factors that had an impact on global demand include the European economic crises and a slowdown in the Chinese economy. Moreover, Windows 8 failed to stimulate PC sales and turn the tide.
As far as global revenues of semiconductor firms are concerned, IDC notes that eight of the top ten companies saw a decline last year. only a few companies that showed positive top-line growth include Qualcomm, Broadcom, NXP, NVIDIA, MediaTek, Apple, and Sharp Electronics.The largest semiconductor company, Intel, saw its revenues decline to $50 billion in 2012, a decline in 3 per cent from 2011 largely due to weak PC demand, and minimal traction in tablets and smartphones. Meanwhile, Qualcomm, the largest fabless semiconductor supplier, ranked third last year as revenues grew 34 per cent to $13.2 billion due to its leadership in modem technology.
Growth in Indian market
In another recent research report, Gartner has also pointed out that the semiconductor market will rebound in 2013. According to the report, while the global semiconductor industry is poised for a rebound, starting in the second quarter of 2013, semiconductor consumption in India will also grow. the research firm predicts that the semiconductor consumption in India will reach $9.6 billion in 2013, an increase of 20 per cent over 2012.
“The improving consumer sentiment on the back of a likely stabilization in the global, as well as domestic economic conditions, coupled with a return to more normal inventory levels in 2013, will be the key factors that will drive semiconductor consumption growth in India during 2013,” says Ganesh Ramamoorthy, Research Director at Gartner. Mobile phones, PCs and LCD TVs will account for 74 per cent of India’s total semiconductor consumption in 2013.
Creating a competitive edge
At a global level however researchers believe that for semiconductor firms, 2013 would be a year for cautious optimism. Brian Matas, vice president of market research for IC Insights points out in a recent article that the good news for semiconductor buyers is that 2013 will not be a seller’s market. But the bad news is that it will not be a buyer’s market either. Rather, supply and demand will be in relative balance for most semiconductors and lead times should stay mostly steady.
While improvement in the overall economy will drive semiconductor revenue growth in 2013, so will firming to rising prices for chips. According to Matas, semiconductor suppliers are moving to a “fab-lite” business model and are outsourcing more production to chip foundries. This would mean that more semiconductor production will be concentrated with fewer sources of supply. In the next 5 years or so, many large OEMs could get price advantages because of their huge purchasing volumes and multiple sources of semiconductors, points out Matas. IC Insights predicts flat pricing in 2013, a 1per cent increase in 2014, flat pricing in 2015 and a 1 per cent increase in 2016.
However, within the semiconductor device types, IDC has observed that performance to be mixed. Sensors and actuators, the report says, grew the fastest at 11 per cent year-on-year, but with 2012 revenues of $7 billion, the segment only accounted for 2 per cent of industry revenues. ASSPs, the largest category of semiconductors with 32 per cent of the overall opportunity, grew by 4 per cent that year, owing to the growth in media, graphics, and application processors. Finally, optoelectronics, with 6 per cent of total semiconductor revenues, grew 5 per cent, mostly from image sensors and LEDs. Revenues for microcomponents dropped 5 per cent due to the low revenues for MPUs and MCUs. Memory and analogues declined by 10 per cent and 7 per cent respectively.
Key value propositions
“Beyond the slowdown in end-market demand, the challenge for semiconductor companies is to zero in on their key value propositions. Whether that is in modem or connectivity technologies, sensors, mixed-signal processing, or power management, there are areas of the market showing strong potential. However, competing in crowded segments with little differentiation has contributed to the slowdown in semiconductor revenues,” said Michael J. Palma, Senior Research Analyst at IDC. According to him, large vendors have been going through a process of narrowing their product portfolios to focus resources on profitable lines where their IP and experience provide an edge in the market.
IDC predicted in its earlier report on ‘Top trends in Semiconductor in 2013’ that investment in R&D will continue be very high and the sector will a strong focus on innovation and use of newer technologies. In the recent report too, the research firm demonstrates that the overall market landscape and reach of semiconductors will continue to expand with the rise of Intelligent Systems and will play a critical role in the overall health and growth of the market.
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