Semiconductors

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Market analysis

The Semiconductor players in our sample reported strong numbers with year-over-year revenue growth of 11%, but a sequential drop of 8%.  Year-over-year growth was driven by TSMC and Applied Materials which both reported strong quarters. Compared to the prior year, net income also jumped by 35.6%. With the exception of Qualcomm, all the companies saw year over year net income improvement. Qualcomm’s legal dispute with Apple over royalties negatively impacted its revenues.1

Worldwide semiconductor sales reached US$30.9 billion in March 2017, an increase of 18.1% compared to the March 2016 total of US$26.2 billion. Sales from the first quarter of 2017 were US$92.6 billion, up 18.1% compared to Q1 2016, but down 0.4% compared to Q4 2016. All major semiconductor product categories experienced year-over-year growth, with memory products continuing to lead the way. Year-over-year sales increased across all regions as well: China (26.7%), the Americas (21.9%), Asia Pacific/All Other (11.9%), Europe (11.1%), and Japan (10.7%).2

The full-year 2017 chip market is forecast to grow by 12%, up from 7.2% last year. Total 2017 semiconductor revenue is expected to touch US$386 billion. Favorable market conditions continued to gain momentum, accelerating growth in 2017 and 2018. But a correction could arrive in 2019, due to additional capacity in DRAM and NAND flash. Emerging opportunities for semiconductors in the Internet of Things (IoT) and wearable technology markets remain choppy, with many of these areas still in the early stages of development and too small to have an impact on growth in 2017.3

Sales in the global DRAM market surged 13.4% sequentially to US$14.13 billion in the Q1 2017, when PC DRAM contract prices rose 30%. Revenues for the quarter also reached a record high. Global supply of DRAM had fallen severely short of demand since late 2016. Most PC OEMs started to negotiate first-quarter contracts in advance. Robust demand from PC OEMs resulted in the sharp rise in the Average Selling Price (ASP) of PC DRAM modules between the fourth quarter of 2016 and first quarter of 2017. Server and mobile DRAM prices were also spurred by the rally in PC DRAM prices. Prices for mobile DRAM products, for example, grew by nearly 10% on average in the first quarter compared to the prior quarter. From the supply side, it is expected that the additional DRAM manufacturing capacity will become available in this year’s second half at the earliest, mainly to meet the demand related to shipments of new smartphones and PCs during that period.4

Samsung Electronics continued to lead the global DRAM market in Q1 2017, with revenues rising 6.8% sequentially, while second-ranked SK Hynix‘s revenues grew by a larger 21.5% on a quarterly basis. Samsung held a 44.8% share of the market during the quarter, followed by SK Hynix with a 28.7% share. Third-ranked Micron Technology saw its DRAM revenues increase 22.3% sequentially in the first quarter, and increased its share to 21% of the global market.4

Applied Materials delivered its highest quarterly revenue and earnings ever due to tremendous momentum in all its key markets. Net sales increased 45% from a year earlier to US$3.55 billion in Q1 2017 and its EPS surged 162% year on year to US$0.76.

TSMC reported revenue of US$7.5 billion and net income of US$2.8 billion for the first quarter ended March 31, 2017. Year over year, first quarter revenue increased 14.9% while net income and diluted EPS both increased 35.3%. Compared to fourth quarter 2016, first-quarter results represent a 10.8% decrease in revenue, and a 12.5% decrease in net income. Gross margin for the quarter was 51.9%, operating margin was 40.8% and net profit margin was 37.5%. Shipments of 16/20-nanometer accounted for 31% of total wafer revenue, and 28-nanometer process technology accounted for 25% of total wafer revenue. Advanced technologies, defined as 28-nanometer and more advanced technologies, accounted for 56% of total wafer revenue. 

Qualcomm’s Q1 2017 revenues were US$5.0 billion, a decrease of 10% compared to the year ago quarter, with net income of US$0.7 billion , a decrease of 36% compared to the year ago quarter. The company shipped approximately 179 million Mobile Station Modem (MSM) integrated circuits for CDMA- and OFDMA-based wireless devices, a decrease of 5% compared to approximately 189 million MSM integrated circuits in the year ago quarter. Despite the decline in MSM shipments, Qualcomm’s semiconductor revenues increased compared to the year ago quarter primarily due to an increase in revenues related to other products, mostly connectivity shipments, as well as the net impact of a higher margin product mix and lower average selling prices. Total reported device sales were approximately US$82.6 billion, an increase of approximately 18% compared to the approximately US$70.1 billion in the year ago quarter. However, licensing revenues declined due to ongoing dispute with Apple over licensing fees due to Qualcomm.Apple’s contract manufacturers reported, but underpaid, royalties in Q1 2017.

 

1. http://www.cnbc.com/2017/04/28/qualcomm-cuts-q3-fiscal-guidance-as-apple-holds-back-royalties-.html
2. Semiconductors.org, May 2017
3. Gartner.com, Apr 2017
4. Digitimes.com,  Apr 2017