Chip Market Thrived in '07, Sees Strong Demand in '08
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Don't talk recession to the chip industry. Both the semiconductor and graphics processing unit (GPU) sectors showed great growth in 2007 and are thus far expected to hold their own in 2008.
Average selling prices (ASPs), on the other hand, are a different story.
The Semiconductor Industry Association (SIA) reported that despite a 100 percent increase in the memory bits sold this year -- that is, the overall amount of gigabits sold -- the overall annual revenue for memory still fell because ASPs dropped so much.
The reason is that capacity managed to somehow exceed demand, according to John Greenagel, a spokesman for the SIA. "In some of these countries, the expansion is subsidized by government. Whenever that happens and people invest without regard for what they got for capital, it does tend to drive overcapacity," he told InternetNews.com. It remains to be seen if this trend will continue into 2008.
The SIA reported that worldwide sales of semiconductors grew 3.2 percent in 2007 to $255.6 billion. Worldwide sales in the fourth quarter of 2007 were $66.8 billion, an increase of 2.5 percent over 2006 fourth quarter sales, and worldwide sales in December were $22.3 billion, up 2.5 percent over December 2006.
The 3.2 percent growth is quite a shortfall from the SIA's initial projection of 10 percent growth for the year back in November 2006. Greenagel said the problem wasn't demand but the collapse in prices. Between the glut of memory and the price war between AMD and Intel, it was a buyer's market.
Even with the talk of an economic slowdown in the U.S., things look good for the chip market. "So far, we have not seen any collapse of demand. PC sales were strong last year, Greenagel said. "We're looking at slightly lower sales this year but that's with a larger base. He added, "Cell phone unit sales grew 20 percent last year, so they may taper off a bit but it's still growing, especially outside the U.S."
The biggest market is consumer devices -- mobile phones, iPods and DVD players -- which account for 55 percent of sales. India and China are growing exponentially and have bypassed laying landlines and gone straight to cellular. China alone is said to have a middle-class population of more than 300 million people, more than the entire population of the United States.
The result has been a decreased dependence on the U.S. to make a market. In 1998, the U.S. was 41 percent of the entire semiconductor market. By 2007, it was down to 23.4 percent, according to Greenagel.
Personal computer sales account for approximately 40 percent of all semiconductor consumption, and mobile is continuing to drive sales. Mobile PC unit sales grew 32.2 percent while desktop unit sales grew by 4.1 percent.
For 2008, the SIA predicts a growth rate of 7.7 percent, to $276.9 billion. "The demand drivers are still very strong despite the ominous things that have economists worried about the economy," Greenagel said.
On the graphics front, the latest sales figures from Jon Peddie Associates shows graphics sales are charging forward with no sign of a slowdown.
Sales topped 100 million for the first time ever in the fourth quarter of 2007, to 106.4 million. That's a 27 percent increase over the 83.5 million units.
Most notable, said Peddie, president of the company, was the tremendous growth in discrete mobile chips. Most laptops use integrated graphics to offer basic 3D graphics. But with laptops becoming more popular as desktop alternatives, people are demanding more powerful graphics chips for tasks such as gaming and DVD playback.
Of those 106.4 million graphics chips, 39.6 million went into laptops. That's 37 percent of the total market. Desktop graphics units gained only 8.3 percent in the same quarter.
Peddie said AMD gained a good amount of ground in both desktop and laptop chips with its new graphics parts.
AMD, through its ATI unit, had 18 percent of the market to Intel's 54 percent and nVidia's 26 percent in the first quarter of 2007. By Q4, AMD had 29.1 percent, Intel had fallen to 46.8 percent and nVidia slipped to 22.8 percent.
AMD released a new part recently, and it has gotten great reviews, while nVidia has been tweaking its G90 processor, released in late 2006. ATI and nVidia used to keep crazy release schedules, releasing a whole new generation once per year, with a refresh six months later. Peddie said that simply can't be done any more.
"These companies are increasing the time between releases because they have become so complicated. They simply couldn't keep up with that old release cycle," he said.
Peddie expects discrete notebook parts to expand in 2008. "It's the smallest of the four but growing," he said. "More and more notebook manufacturers will offer discrete instead of integrated." It will be needed for the bigger monitors; next year, he said there will be laptops with a 19-inch monitor.
He believes the overall year will come just under 10 percent for annualized growth with the usual seasonality. Q1 traditionally has a drop coming off the holiday season rush. It may be worse due to economic concerns but he added it's too soon to tell. Both nVidia and AMD have not given road maps for the year.