IC sales gain strength but keep an eye on DRAMs, x86 MPUs
A service of Semiconductor Business News, CMP Media Inc.
Story posted 9 a.m. EST/6 a.m., PST, 5/6/99
By J. Robert Lineback
PHOENIX--Semiconductor sales continued to gain strong momentum in March, based on new date released this week, and now just about the only thing that seems to be worrying chip managers and analysts is pricing of ICs in two key markets--DRAMs and PC microprocessors. In those segments, major suppliers are battle each other for market share in the second quarter.
"When we look back, we'll see this period [in the recovery] as the 'market share' quarter," suggested analyst Bill McClean, president of IC Insights Inc. in Scottsdale, Ariz. McClean, like other industry observers, believes the world's surviving DRAM suppliers are now charged up and jockeying for position in anticipation of much stronger memory markets in the second half of 1999, next year and 2001.
"This crazy DRAM market never seems to fail to amaze you," he said. "We watched prices on 64-megabit go from $6.50 to almost $10 in a period of six to seven months--from July 1998 to February 1999--and now we've seen them go down to the $7 range," noted McClean, referring to the sharp slide since March.
Many market observers are expecting to see revenue growth slow a bit in the second quarter as a result of the DRAM battles and falling average selling prices, but most are not overly concerned--yet--about the overall impact of the intense competition. In fact, some analysts and chip managers are increasing their forecasts for 1999 chip sales by several percentage points after seeing strong March billings number released by the Semiconductor Industry Association on Wednesday.
According to the SIA's three-month moving average, worldwide semiconductor sales grew 6.7% in March to $11.16 billion compared to $10.46 billion in the same month last year. Asia Pacific sales jumped 11.8%, and even recession-battered Japan saw an 8.1% gain in March chip sales over last year, according to the SIA billings report (see summary below).
"March was better than expected," said McClean, who is holding to his forecast of 12% revenue growth for integrated circuits in 1999, which would put the IC segment at $122.6 billion vs. $109.1 in 1998. But McClean is keeping a close eye on the fickle DRAM business, which he still expects grow by 25% to $17.5 billion in 1999.
In 64-Mbit DRAMs, the world's three biggest suppliers--Micron, Samsung and the new Hyundai/LG Semicon operation--are all three aiming to be have top market share. "Until the [acquired] TI facilities are fully ramped up by Micron, I think Samsung will still be the leading supplier, but by the end of 1999 that could change," said McClean. "Hyundai/LG is also determined to become the leader. It's pretty much a real dog fight for market share.
In the once-mighty microprocessor arena, average selling prices are also being undermined by a market share battle for low-cost PC processors between Intel Corp. and rival Advanced Micro Devices Inc. "AMD virtually had taken over the low-end [x86 processors for sub-$1,000 PCs] by the fourth quarter last year, and Intel is responding by pulling in its prices," observed analyst Dean McCarron at Mercury Research Inc. in Scottsdale, Ariz. "The big issue is what happens in the second half when AMD's K-7 shows up. If it threatens Intel, then prices will come down faster, but if it doesn't, then Intel will begin to back off."
The battle for low-end PC processors has already taken one casualty--National Semiconductor Corp., which announced on Wednesday that it was ending its efforts to serve personal computers with its Cyrix MPUs. The Santa Clara, Calif., chip maker focus its microprocessor activities on so-called information appliances and other applications, such as set-top boxes for interactive TV (see May 5 story).
In 1999, x86 processor arena, unit growth is slowing. According to Mercury Research, 130 million units will be shipped this year, an increase of 13.7% over 1998 x86 processor volumes. Last year, x86 unit shipments grew by 17.5%, McCarron said. The revenue growth is even slower. In 1999, x86 processors revenues will increase by just 9% to $23.4 billion worldwide compared to $21.5 billion last year. The increase in x86 revenues is now expected to lag the overall semiconductor growth in 1999, which according to most forecasts will be rise between 12-18%.
One extremely hot market is digital signal processors (DSPs). The segment is being fueled by stronger than expected demand for semiconductor by cellular phone makers. Strong sales of digital wireless cellular phones in Europe and growth in North America are driving up DSP sales. "We are seeing a strong recovery in Asia after last year's slowdown," says DSP analyst Will Strauss of Forward Concepts Co. in Tempe, Ariz. New DSP design-ins are also beginning to grow in the emerging third-generation cellular phone market as well, he adds.
In January, DSP sales grew 17% to $286 million compared to $244 million in the same month last year, and in February, the segment increased by 16% to $293 million vs. $253 million a year ago, Strauss said. "Normally, Q1 is the weakest quarter of the year for all market segments," he added. Strauss is now looking for a 25% increase in DSP revenues to $4.4 billion compared to $3.5 billion. In the industry's recession last year, DSP revenues managed to grow 9%, he said.
"This [stronger DSP growth] is why Intel believes it has to move into the digital signal processor market," noted Strauss, referring to the microprocessors giant's partnership with Analog Devices Inc. to jointly develop a new DSP core (see Feb. 3 story).
March semiconductor sales by regions
Region March 1999 March 1998 % change February 1999 % change
Americas $3.606 billion $3.441 billion 4.8% $3.550 billion 1.6%
Europe $2.524 billion $2.447 billion 3.2% $2.490 billion 1.4%
Japan $2.419 billion $2.238 billion 8.1% $2.303 billion 5.0%
Asia Pacific $2.607 billion $2.330 billion 11.8% $2.552 billion 2.1%
Total $11.155 billion $10.456 billion 6.7% $10.894 billion 2.4%
Source: SIA
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