Strong PC shipments to boost semiconductor revenue

Semiconductor revenue could receive a lift by increased PC shipments and DDR3 memory pricing

Gartner on Thursday said worldwide semiconductor revenue this year will be stronger than previously projected as shipments of PCs and smartphones grow rapidly.

The research firm is now projecting semiconductor revenue to reach US$290 billion this year, an increase of 27.1 percent compared to 2009, when revenue totaled $228 billion. Gartner previously projected revenue to grow by 19.9 percent this year.

"The improvement is a combination of the economic recovery, an improvement in hardware spending and semiconductor sales exceeding the pace of systems sales," said Bryan Lewis, research vice president at Gartner. Manufacturing constraints have also caused a rise in semiconductor prices, particularly DDR3 memory, he said.

PCs and smartphones will account for about 40 percent of the semiconductor market's growth in 2010, Gartner said. PC prices are stabilizing as shipments increase, which has led to higher microprocessor revenue. Microprocessor revenue is now expected to grow 15.5 percent, an increase from 10 percent previously projected by Gartner.

Intel and Advanced Micro Devices in April said the average selling prices of PCs had increased, which helped boost mobile-microprocessor revenue for the chip companies. Intel said the economic environment of the IT industry was improving from the rock bottom it hit around the middle of last year.

The prices of DRAM are also surging as a result of increased PC shipments, Lewis said. DRAM revenue could grow by 78 percent this year, making it the strongest performer device in the semiconductor market, Lewis said.

Prices of DDR3 in May were more than double the price of May 2009, Lewis said. Contract pricing for DDR3 in May was $2.62, up from $1.20 in May 2009, he said.

"The overall supply-demand situation for the DRAM industry will continue to favor the DRAM vendors with the market under-supplied," Lewis said. However, the price increase that started at the beginning of 2009 seems to be coming to an end, Lewis said.

PC makers are putting increasing pressure on the DRAM vendors to reduce pricing, Lewis said. PC makers are also looking to reduce the cost of building consumer PCs by reducing the DDR3 memory content.

"The effect of the PC vendors moving to cut content is hard to quantify, because it is not as simple as 4GB machines moving to 3GB and 3GB moving to 2GB," Lewis said. PCs with fixed configurations in retail stores may likely show up with lower DDR3 content so PCs are more affordable. The PC vendors' desire to reduce costs will be felt most in the consumer space, but price changes may not show up overnight, Lewis said.

"A major portion of the market is driven by contracts with the large retailers and these contracts will have to be renewed with lower specifications," Lewis said. "But once the [contents] are reduced, the lower content configurations will stay in place for a quarter at least," Lewis said.

New devices like Apple's iPad tablet computer have performed strongly but they won't have a near-term impact on semiconductor revenue, Lewis said. If the tablet segment continues to grow, it will likely have a noticeable impact on semiconductor revenue by 2013. Semiconductor sales for tablets will be about $1.3 billion in 2010, Lewis said.

Semiconductor revenue could total $307 billion in 2011, according to Gartner's forecast.

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