Top ten buyers take third of 2008 chip business

Sales of semiconductors to the top ten original equipment manufacturers (OEMs) dropped away slightly in 2008, falling 3.8 per cent from 2007 to $91.6bn. The top ten accounted for one-third of all semiconductor consumption, according Gartner, with PCs and mobile phones representing the bulk of the business.

To make the top ten, companies needed to buy $6bn in chips, said Alfonso Velosa, research director at Gartner, about $0.1bn more than in 2007. And unit shipments to the top ten grew in 2008 over 2007. “PCs are such a big part of the business. Memory just collapsed: the pricing in the memory marketplace pulled the total sales down,” he explained.
HP remained the leading OEM for semiconductor consumption, accounting for $16.5bn in 2008 — little changed from 2007 – despite a significant increase in unit shipments. As the top PC maker, HP was the leading consumer of microprocessors and memory semiconductors.

The big winner of 2008 was Apple. According to Velosa, the Macintosh maker’s success provides a guide to what semiconductor companies need to be aware of for the future, with a much greater emphasis on software to pull together the functions of different kinds of chip, rather than the performance of individual elements. The main reason for Apple’s rise from ninth position to number six in the top ten, with semiconductor purchases of around $7bn, was the iPhone.

Pointing to Nintendo, which is well outside the top ten but shows a similar approach to that of Apple, Velosa said: “They have a good understanding of chips: ASICs, ASSPs and MEMS sensors, along with the software. Look at the products that Samsung and Nokia, they are thinking about how they compete with the iPhone.

“Things like the Nintendo Wii are indications of where we see big electronics companies going in the future. It is an opportunity for the big semiconductor companies to work with these firms,” Velosa added. “They need to understand how the different sensors work and how they fit together in the system. They were concentrating on speeds and feeds but they forgot about how important the software is. The functionality in the software is what they have woken up to.”

Other changes are more subtle but are affecting the chipmaking business. “These guys in the top ten buy a third of all semiconductors. The changes in their strategy have their repercussions,” Velosa claimed, pointing to a trend away from using ASICs to ASSPs.

“Nokia changed its strategy and that is having real repercussions. They are moving towards ASSPs and that is helping to roil up the mobile [silicon] market,” said Velosa, pointing to ST’s plans to absorb both NXP’s mobile-chip business and Ericsson Mobile Platforms and Freescale’s plans to divest its own operation. “That partly relates to economies of scale but also to the question of how you are going to deal with the big customers.
“Since Nokia is the world's largest vendor of mobile phones, this shift will continue to have a major impact on the semiconductor market.”
Although the top ten is made up primarily of consumer-market companies, Velosa said industrial and automotive companies are important in the top 30. “And a lot of companies are doing stuff in solar energy,” he claimed.

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