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Market analysis

The semiconductor industry reported flat to negative growth quarter over quarter and year over year with the exception of TSMC which grew by 43.7% year over year. This was due to seasonality and a saturation level reached by smartphones in the emerging and fast-growth markets. The Semiconductor Industry Association reported that worldwide sales of semiconductors reached US$83.1bn during Q1 2015, an increase of 6.0% compared to Q1 2014. Global sales for the month of March 2015 were US$27.7bn, 6.0% higher than the March 2014 total of $26.1bn and 0.1 % lower than February’s total. Companies under the scope of study reported an average of 12% growth in revenue year over year, but flat quarter-over-quarter numbers. Net income also dipped by 22.3% on average quarter on quarter, but reported positive growth of 17.6% year over year. Results were impacted by seasonality on a quarter-over-quarter basis, but slower demand for end products like smartphones and tablets accelerated the decline.1

The Americas region posted its sixth straight month of double-digit, year-over-year growth to lead all regional markets, and DRAM and analog products were key drivers of all global sales growth.1

Regionally, sales were up compared to February in Asia Pacific/All Other (3.1%), Europe (2.7%) and China (1.0%). Japan (-0.4%) and the Americas (-6.9%) both saw sales decrease compared to February. Compared to March 2014, sales increased in the Americas (14.2%), China (13.3%) and Asia Pacific/All Other (3.8%), but decreased in Europe (-4.0%) and Japan (-9.6%).1

The US is considering a legislative initiative called Trade Promotion Authority (TPA) that would help promote continued growth in the semiconductor sector and throughout the US economy. Free trade is vital to the US semiconductor industry. In 2014, US semiconductor company sales totaled US$173bn, representing over half the global market, and 82% of those sales were to customers outside the United States.1

Worldwide semiconductor revenue is expected to reach US$354bn in 2015, a 4% increase from 2014. There are concerns about semiconductor revenue growth in 2015 as system suppliers start to grapple with the rapid depreciation in value of global currencies relative to the US dollar, excess inventories in the semiconductor and electronics supply chains and the end of a PC upgrade cycle.2

The strong dollar is causing system suppliers and system buyers to re-evaluate their strategies. System suppliers are expected to raise prices in select regions such as Europe to keep their margins intact as well as de-feature some products to maintain current price points. System buyers will push out purchases in select regions, extending product life cycles as well as buying down the price curve. All this will adversely affect semiconductor growth in 2015.2

From an application point of view, smartphones, solid-state drives (SSDs) and ultra-mobiles are expected to see the largest semiconductor growth, while the traditional PC segment is forecast to experience the greatest decline. The end of support for Windows XP, which lifted the replacement demand for traditional PCs, particularly in the professional market, faded out in late 2014. Through 2015, the replacement demand is expected to remain slow, as consumers delay migrating to Windows 10. The next critical season for the PC and ultra-mobile markets is in the third quarter of 2015, when Windows 10 and Intel's Skylake products come to market.2

DRAM is expected to be a primary growth driver for the overall industry. DRAM revenue is expected to increase 7.9% in 2015, following a 32% increase in 2014. Demand for DRAM will slow down by the end of 2016 and early 2017 when DRAM industry revenue is expected to decline by 20.2% and 8.4%, respectively.2

TSMC reported consolidated revenue of NT$222.03bn, net income of NT$78.99bn and diluted earnings per share of NT$3.05 (US$0.48 per ADR unit) for the first quarter ended March 31, 2015. Year over year, first-quarter revenue increased 49.8%, while net income and diluted EPS both increased 65.0%. Compared to fourth quarter 2014, first-quarter results represent a 0.2% decrease in revenue, a 1.2% decrease in net income and a 1.3% decline in EPS. In US dollars, first-quarter revenue decreased 2.6% from the previous quarter and increased 43.7% year over year. Shipments of 20-nanometer process technology accounted for 16% of total wafer revenues and 28-nanometer accounted for 30% of total wafer revenues. Advanced technologies, defined as 28-nanometer and 20-nanometer technologies, accounted for 46% of total wafer revenues. The demand for TSMC’s wafers remained strong in the first quarter.

Applied Materials posted its highest quarterly revenue of the past three years. Net sales were US$2.44bn, up 4% sequentially and up 4% year over year. The company recorded GAAP gross margin of 41.6%, operating income of US$416mn, and net income of US$364mn or US$0.29 per diluted share. First-quarter orders were US$2.52bn, up 11% sequentially but down 4% year over year.

Qualcomm's quarterly revenue declined 3% sequentially and is expected to fall further in coming quarters. Loss of 100% of its Samsung business, heightened chip competition and further decline in royalty rates has adversely impacted earnings. Qualcomm had revenue of US$6.9bn and EPS of US$1.17. Revenue from equipment and services was off 16%, largely due to the loss of the Samsung business. Last quarter Samsung announced it had dropped Qualcomm's Snapdragon processor in its Galaxy S6 for its in-house Exynos chip.3

  1., April 2015
  2. Gartner, April 2015
  3., February 2015

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