Chip industry revenues will fall in 2012, says Gartner

With booming and much-hyped markets for smartphones and tablets, you might think the chip industry would be doing well. It isn't. Gartner reckons semiconductor revenues will fall by 3 percent this year as PC production falls by 2.5 percent.

The decline in PC sales is hurting the global semiconductor industry, and sales of smartphones have not helped much, according to the latest Gartner report. Based on estimates of revenues in 2012, the US-based research company reckons that eight of the top 10 suppliers will see revenues decline, with only Qualcomm and Broadcom increasing their revenues.

Gartner reckons that worldwide semiconductor revenue will fall by three percent from $307 billion to $298 billion in 2012, with revenues at the top 25 vendors falling by 4.2 percent, more than the industry average.

Intel remains the market leader, with estimated semiconductor revenues falling by 2.7 percent to $49.3 billion. Intel is followed by Samsung (down 8.7 percent to $25.0bn), and Qualcomm (up 29.6 percent to $13.0bn).

Table of semiconductor revenues for 2012

Gartner research director Steve Ohr said in a statement: "The hardest hit areas include the PC supply chain, memory, analog and discrete components. The PC business, ordinarily a growth driver, was on a negative slope for the first time in many years. PC production declined 2.5 percent in 2012. Even the smartphone juggernaut had begun to show signs of maturing, though it remained the strongest driver for revenue growth in 2012."

Intel has not had any success in smartphones. However, as Gartner observed: "the company did hold onto the number-one market share position for the 21st consecutive year, capturing 16.6 percent of the 2012 semiconductor market, its best performance ever."

Qualcomm has been successful in smartphones with its Snapdragon range of ARM-based chips, and it also makes considerable sums from patent licensing. Gartner said: "Qualcomm attributed its 29.6-percent growth to continued adoption of smartphones and the growth of 3G and LTE technology in emerging regions, such as China and India."

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The decline in semiconductor revenues does not necessarily imply a decline in semiconductor shipments, though it is true that smartphones typically have smaller, cheaper processors and much less memory and storage than PCs. (Many smartphones have 512MB-1GB of memory, and tablets are little better, whereas PCs typically have 4GB-8GB.) However, it does reflect a decline in prices.

Gartner says: "As a group, memory makers suffered the most. DRAM makers suffered from rapid price declines, while the NAND flash market also saw strong price declines as a consequence of sluggish bit growth."

Gartner doesn't mention that this involves a transfer of wealth from chip makers to phone makers, who may charge up to $100 more for a device with an extra $10-worth of RAM or storage.

The semiconductor industry was expected to improve in the second half of this year, in preparation for "a recovery phase" in 2013. However, Gartner says: "Third quarter order rates were below seasonal expectations, and guidance for the fourth quarter of 2012 forecast further declines."

The economic recession and current market oversupply (in Gartner-speak, the "ongoing inventory overhang") now make it harder to predict a recovery next year.

Gartner analyst Peter Middletown said "the looming fiscal cliff, ongoing European debt crisis, slower emerging market growth and regional tensions" have prompted the company to reduce its forecast for 2013 semiconductor revenues down from $330bn to $311bn. That still represents a 4.5-percent increase on this year. It could be worse.