Worldwide semiconductor revenues grew by more than five percent in 1997, notwithstanding the collapse of memory prices, according to preliminary estimates by market research firm Dataquest.
Sales of microprocessors, memory chips, digital signal processors (DSP), and embedded chips topped $150 billion in 1997, showing healthy growth in every segment but memory, which was pounded by the yearlong slide of DRAM (dynamic random access memory) prices.
Market leader Intel (INTC) claimed more than $21 billion in sales, chiefly through its commanding share of high-margin microprocessors. The Santa Clara, California, company has also been preeminent in flash memory, a kind of memory that retains data after a device has been turned off.
Intel took in $21 billion, an 18.6 percent improvement on 1996's total revenues of $17.7 billion, according to Dataquest. Key to that performance was the surging sub-$1,000 PC market, which grew to as much as 40 percent of the PC market. To maintain its leading position in a segment characterized by low margins, Intel abandoned its traditional tactic of manufacturing a "one-size-fits-all" chip, instead producing different versions of its Pentium, Pentium MMX, and Pentium II products.
Intel was also able to adjust to the PC industry's general shift to "build-to-order" manufacturing, a system in which makers assemble PCs according to customer specifications, Bohn said. Build-to-order aims to reduce the manufacturer's inventory, which carries obvious implications for chip manufacturers.
Soft demand for PCs in Asia slowed Intel, however, and the company's Pentium II and notebook chips seem to be struggling of late. In part because Asia's economic woes has caused cancellation of notebook PC orders, Intel faces a large notebook chip surplus (see related story), while Pentium II prices have fallen abnormally fast, for a variety of reasons.
Still, the company retained its traditional margin of around 50 percent, Bohn said.
Unlike Intel, the majority of the top ten chipmakers compete in the DRAM market, which has seen 16-megabit chips drop from the $12 range in early 1996 to above $7 at the start of 1997. Current prices are as low as $2.50 a unit in the spot, or surplus, market--a price that's about the same or even lower than the cost of manufacture.
64-megabit DRAM chips, which will begin to replace 16-megabit chips in 1998, began 1997 at $75 before dropping to $57 by the end of the second quarter and $49 at the end of the third quarter. More recently, the chips cost just about $30.
Japanese and South Korean firms such as Toshiba, Hitachi, and Samsung simultaneously dominate and are heavily dependent on this market, meaning that in addition to competitive pricing pressures DRAM was influenced by the currency devaluation of the yen and the won. "This meant another year of revenue decline or no growth for a host of memory-dependent companies as measured in dollars," Bohn said.
Toshiba's revenues of $7.5 billion declined 6.9 percent compared to year-ago figures, Hitachi declined 19.2 percent on revenues of $6.5 billion, and Samsung 7 percent on revenues of $6.0 billion.
"Companies dependent on DRAM will continue to face uncertainty and a volatile market," Rohn predicted.
Of the top ten companies in terms of revenue, four lost ground last year, and only Fujitsu joined Intel with double-digit gains.
Growth rates for DSPs and embedded processors were impressive, Dataquest said, though not spectacular. DSPs are in specialized hardware components such as cell phones, modems, and sound cards. Embedded processors are low-end, typically nonprogramable microprocessors designed to perform specialized functions, widely used in consumer and industrial devices. The number of embedded processors sold each year dwarfs the number of microprocessors sold, but their cost is very low and margins are slim.
"A lot of positive stuff was happening quietly," Bohn said. "We expect that continue happening at least for the next couple of years."