Top 20 chip companies to boost capital spending
Semiconductor companies are expecting 20% plus revenue growth in 2004 and will increase their capital spending by more than 50% over 2003.
By James Carbone -- Purchasing, 6/17/2004 2:00:00 AM
Top semiconductor companies are expecting a second straight year of strong revenue growth as strong chip demand in 2003 carried over into 2004. Semiconductor suppliers and analysts are forecasting a 20% increase in revenue for the year.
Last year chip revenue grew 18.3% to $166.4 billion, according to the Semiconductor Industry Association. Most of the top 20 semiconductor companies reported sales gains over 2002. In fact, the number of chip companies that had sales gains outnumbered those that declined by a ratio of 4:1, according to market intelligence provider iSuppli.
Sixteen percent of all semiconductor suppliers boosted sales by more than 50% in 2003. Among the top 20 chip suppliers, Infineon, AMD/Spansion, Sony, Sharp Electronics, Hynix, and Qualcomm led the market with growth rates ranging from 27%-48%, according to iSuppli.
Sales growth is obviously good news for the industry, but it is also good news for semiconductor buyers. Reason: Positive sales gains mean chip companies will invest in additional capacity and technology development. In fact, some analysts say many chip makers will be too aggressive with capital spending in 2004, which will result in too much capacity, lower prices and lower revenue in 2005.
Most semiconductor suppliers suffered steep sales declines during the downturn, which prevented many of them from investing in new capacity. Even with last year's sales growth some companies were reluctant to boost capital spending. However, after a strong first quarter, more semiconductor suppliers have decided it's time to increase capital expenditures (capex).
The top dog
One company that remained strong during the downturn and was bullish in capital spending is Intel. Intel remains the top semiconductor supplier with about $27 billion in revenue in 2003. Intel owns about 80% of the microprocessor market and grew its sales 14% from 2002. Intel was buoyed by strong PC sales, which increased 11% in 2003, according to researcher Gartner.
Intel dominates the chip market with about 15% share of the total semiconductor market. Its sales are nearly three times that of its closest rival, Samsung, which had about $9.7 billion in revenue in 2003 and owns roughly 5.3% of the total semiconductor market, says iSuppli.
Intel notwithstanding, the semiconductor market is very competitive. Consider: While Samsung has 5.3% of the chip market, Rohm, the twentieth largest chip company, has 1.3% market share. That's a difference of only four percentage points between the second largest supplier and the twentieth largest.
The top three to six suppliers, Renesas, Texas Instruments, Toshiba and STMicroelectronics, are very close in revenue. Renesas is third on the top 20 list with $7.97 billion in sales and 4.4% of the market. Texas Instruments is fourth with $7.85 billion in sales and 4.3% share. Toshiba is fifth with $7.57 billion in revenue, and 4.2% share and STMicroelectronics is sixth with $7.23 billion in sales and 4.1% share.
There were some significant changes in supplier rankings in 2003, reflecting business conditions, product demand and consolidation in the industry.
Despite strong growth, Texas Instruments, Toshiba, STMicroelectronics, Infineon and NEC Electronics each dropped a spot in the rankings with the rise of Renesas, which was not in last year's top 20 list. Renesas was formed by the merger of Mitsubishi's and Hitachi's memory IC businesses.
TI increased sales 20.2%; Toshiba, 17.9%; STMicroelectronics, 13.9%, Infineon, 32.3% and NEC, 8.7%. Among the top 20 suppliers, four companies moved up more than three places in the rankings: AMD/Spansion, Sony, Sharp Electronics and Qualcomm.
IBM Microelectronics and Motorola/Freescale Semiconductor were the only companies in the top 20 to suffer revenue declines in 2003.
Strong growth
Besides Infineon and TI, another company that had significant sales increase was AMD. AMD, which merged its flash memory operations with Fujitsu to form Spansion, had a 48% rise in revenue. Sharp Electronics boosted sales 35.6%; Sony had a 25.7% increase; Hynix grew sales 28.4% and Qualcomm's revenue rose 27%.
Chip companies' revenue increased in 2003 for several reasons. PC shipments increased 11% to 169 million units in 2003. Computer sales drive microprocessor and memory IC sales.
The boom of wireless communications devices drove sales for many semiconductor companies. Sales of baseband chips, media processors, image processors, RF ICs and power amplifiers were strong and companies like TI, Qualcomm and Sony benefited.
Besides strong end-equipment demand, top semiconductor suppliers benefited from price firming. Prices had declined for about three years because of weak demand and high inventory levels. But excess inventory finally got worked off in 2003 and prices firmed.
Most analysts and suppliers say 2004 will be a continuation of 2003. The difference is that chip demand didn't really pick up until the second half of 2003, but in 2004 demand will be strong throughout the year. If prices increase, it will result in higher than forecast revenue growth.
Chip sales grew 32.3% in the first quarter compared to the first quarter of 2004, according to the SIA. Because of the strength of first quarter sales the SIA will likely upgrade its forecast for the year to more than 20%.
The companies that did well in 2003 will do well in 2004 because the same end markets will drive the semiconductor industry, according to Dale Ford, vice president, market intelligence services for iSuppli Corp.
For instance, Infineon, which increased sales by 32.3% will likely have another good year because of strong DRAM sales. "One key to their growth is that they have been successful in the DRAM business," says Ford. "Their DRAM revenue grew 43%. Infineon has also been strong in baseband and RF products. DRAM growth along with growth in wireless communications has benefited them and will benefit them in 2004," says Ford.
Absolutely fabless
A key chip supplier to watch is Qualcomm, a fabless chip company. "Qualcomm is a company that has strung together multiple years of growth during the downturn and now they are in the top 20," says Ford. In fact, Qualcomm is the first fabless company to make it into the top 20 and will likely remain the only fabless supplier in the list for the next several years at least. ATI is number 28, but would have to have 70% growth to crack the top 20. However, its sales grew 68% in 2003 so anything is possible. Other fabless companies such as Broadcom and Xilinx had strong sales in 2003 and will likely see more growth in 2004.
Qualcomm could move a spot or two because of its strength in supplying chips for the wireless market. TI also supplies to the wireless market and will have another healthy year.
"Suppliers that can maintain or increase their share in the wireless market will have strong years," says Ford.
Ford says there will be strong growth in flash memory, but also more competition as an increased number of companies jump into the flash fray. STMicroelectronics, which makes NOR flash for code storage, is ramping up production of NAND flash for data storage as well. Competition will likely keep prices in check and loosen up availability.
A chip company that did poorly in 2003, but could bounce back in 2004 is IBM Microelectronics. IBM supplies microprocessors, SRAMs and application specific integrated circuits (ASICs). "IBM had a strong position in wire-line communications for its ASICs and that segment struggled greatly in recent years," says Ford. "The market, which includes networking equipment, has been in the worst shape of any of the applications markets."
However, the networking equipment market is expected to improve and IBM has had some key design wins in video game systems, which will improve its ASIC business, according to Ford.
He notes that while IBM slipped from 15 to 18 in the Top 20 rankings, the revenue figure does not include its foundry business, which grew from $720 million in 2002 to $800 million in 2003. "IBM is the number three foundry supplier behind Taiwan Semiconductor Manufacturing Company (TSMC) and United Manufacturing Company (UMC)," says Ford.
Also notable is Toshiba which posted 17.9% sales increase due in part to its flash memory business, which accounts for 24% of its sales. Its flash business grew a whopping 108% in 2003. Toshiba makes a wide variety of semiconductors for various customer segments.
TI posted solid 20% growth because of its strong digital signal processor (DSP) and analog IC sales. Nearly 39% of TI's chip sales are DSPs while analog chips account for nearly 44% of its semiconductor revenue, according to Ford. TI is positioned well for growth in 2004 because DSP sales are forecast to grow 27.1% and the analog IC market will grow 15.4%, according to the SIA.
STMicroelectronics is also a key player in analog. About 47% of the supplier's revenue is from analog IC sales. STMicroelectronics will likely grow share in flash memory in 2004.
Second banana
Most companies are bullish about 2004, including Samsung. Although Samsung has little hope of replacing Intel anytime soon as the top chip company, the company believes it will have solid if not stellar growth in 2004.
About 74% of Samsung's sales are from memory ICs especially DRAM and flash, according to iSuppli. Samsung believes it differentiates itself in the DRAM market by supplying leading edge densities and technologies.
"We have the next generation technology before the competition and enjoy the margins of delivering that technology early," says Tom Quinn, vice president of memory sales and marketing for Samsung.
"We run about 31%-32% share in revenue and about 27% share in units. What that means is with wafer starts we are able to build products that command a bit more of a premium. That is fundamental to Samsung's strategy and will continue," says Quinn.
He says 512-megabit densities and DDRII (Double Data Rate II) technology will be key to Samsung's growth in 2004.
"We're shipping our 512-megabit monolithic chip. That's a big deal because that is an advanced technology and we were the first one to have it in volume," he says. With the chip Samsung was able to build two gigabit modules at "very nice premiums into segments that want that technology: high-end servers," says Quinn.
He says DDRII will boost Samsung sales in 2004 and beyond. "DDRII will be the big thing this year. Major OEMs are excited about the technology. It is a great technology because it provides lower power and higher speed and higher density," says Quinn. There will be a quick ramp of DDRII. He says many customers will embrace it and drive it aggressively although some will take a wait-and-see attitude.
Besides servers, desktops and notebook computers, wireless communications will drive Samsung's memory IC sales.
"Mobility is driving demand for more memory," says Quinn. "Cellphones used to be voice tools, but they are migrating to multi-purpose multimedia tools. As that happens the memory content goes up dramatically." New cellphones will have flash, SRAM and DRAM. Cellphone manufacturers are looking for memory to be combined in a single multi-chip package to save board space.
As a result of increased demand for memory in mobile phones, cellphone manufacturers will be more important customers for Samsung and other memory IC manufacturers.
"Today for every dollar of memory purchased for handsets there is $10 of memory purchased for PCs, a 10 to one ratio," says Quinn. "In 2008, it will be a one and a half to one ratio. There is so much volume in handsets. It's not just DRAMs, it's flash and SRAMs."
To remain the market leader in memory Samsung is investing in its operations.
To capitalize on market opportunities, "you have to invest in capacity and technology. You have to have products and the capacity to fill demand so capex (capital expenditure) is paramount for us," says Quinn.
Samsung's strategy has been to own its own capacity, process technology and own and develop its product portfolio.
"We think that gives us better control of our destiny. You have to have the engineering wherewithal to build a product portfolio because if you don't have the product portfolio you are at risk," he says.
Hey big spender
In fact, while Samsung is the number two chip company in revenue, it is projected to be the top capex spender in 2004, according to market researcher IC Insights.
Samsung will spend $4.1 billion in capex in 2004, a 15% increase over 2003. Intel will increase capital spending by 4% to $3.8 billion this year.
Samsung's and Intel's percentage increases in capital spending seem small compared to some smaller companies. For instance foundry SMIC will boost capex 296% to $1.95 billion; UMC will increase spending 187% to $2.1 billion and AMD's capex will rise 156% to $1.5 billion, says IC Insights.
Overall the semiconductor industry will increase capital spending by 53% in 2004 as chip makers add capacity and boost production. Some chip companies have already announced increases in capital spending over and above what they had originally budgeted for 2004.
The increase in spending is good news for buyers, but it actually could hurt the semiconductor industry in 2005, according to Bill McClean, president of IC Insights.
He says that since 1978, the semiconductor industry has never grown by more than 8% following a year when capital spending increased more than 50%. When capex increases, more production comes online which depresses prices.
Also, the electronics industry is cyclical. By the time new capacity comes online, end equipment demand which may have been booming dries up, further weakening prices and revenue for chip companies.
"Additional announcements by semiconductor producers regarding the boosting of their 2004 capital spending budgets should now be viewed as increasing bad news for the 2005 semiconductor market," says McClean. However, it will be good news for buyers because it means more supply and lower prices.
Top semiconductor suppliers
Top 20 companies shipment revenue ($ millions)
| 2002 rank | 2003 rank | Company name | 2003 revenue | 2002 revenue | Percent change | Percent of total | Cumulative percentage |
| SOURCE: iSuppli |
|||||||
| 1 | 1 | Intel | 27,036 | 23,702 | 14.1% | 14.9% | 14.9% |
| 2 | 2 | Samsung Electronics | 9,675 | 8,751 | 10.6% | 5.3% | 20.2% |
| — | 3 | Renesas Technology | 7,971 | 0 | — | 4.4% | 24.6% |
| 3 | 4 | Texas Instruments | 7,850 | 6,530 | 20.2% | 4.3% | 28.9% |
| 4 | 5 | Toshiba | 7,571 | 6,422 | 17.9% | 4.2% | 33.1% |
| 5 | 6 | STMicroelectronics | 7,238 | 6,354 | 13.9% | 4.0% | 37.0% |
| 6 | 7 | Infineon Technologies | 7,109 | 5,375 | 32.3% | 3.9% | 41.0% |
| 7 | 8 | NEC Electronics | 5,705 | 5,250 | 8.7% | 3.1% | 44.1% |
| 8 | 9 | Freescale Semiconductor (Motorola) | 4,629 | 4,807 | -3.7% | 2.5% | 46.6% |
| 9 | 10 | Philips Semiconductors | 4,512 | 4,361 | 3.5% | 2.5% | 49.1% |
| 12 | 11 | Matsushita Electric | 4,016 | 3,280 | 22.4% | 2.2% | 51.3% |
| 17 | 12 | Advanced Micro Devices (AMD)/ Spansion | 3,939 | 2,661 | 48.0% | 2.2% | 53.5% |
| 16 | 13 | Sony | 3,508 | 2,791 | 25.7% | 1.9% | 55.4% |
| 14 | 14 | Micron Technology | 3,418 | 2,895 | 18.1% | 1.9% | 57.3% |
| 20 | 15 | Sharp Electronics | 3,075 | 2,267 | 35.6% | 1.7% | 59.0% |
| 18 | 16 | Hynix | 3,071 | 2,392 | 28.4% | 1.7% | 60.7% |
| 13 | 17 | Fujitsu | 2,650 | 3,126 | -15.2% | 1.5% | 62.2% |
| 15 | 18 | IBM Microelectronics | 2,515 | 2,808 | -10.4% | 1.4% | 63.5% |
| 23 | 19 | Qualcomm | 2,466 | 1,941 | 27.0% | 1.4% | 64.9% |
| 19 | 20 | Rohm | 2,398 | 2,363 | 1.5% | 1.3% | 66.2% |
| Other Companies: | 61,408 | 61,086 | 0.5% | 33.8% | 100.0% | ||
| Total Revenue: | 181,760 | 159,162 | 14.2% | 100.0% | |||
Top fabless suppliers
Top 20 companies (fabless) shipment revenue
($ millions)
| 2002 rank | 2003 rank | Company name | 2003 revenue | 2002 revenue | Percent change | Percent of total | Cumulative percentage |
| Source: iSuppli |
|||||||
| 1 | 1 | Qualcomm | 2,466 | 1,941 | 27.0% | 11.4% | 11.4% |
| 2 | 2 | Vidia | 1,716 | 1,812 | -5.3% | 7.9% | 19.3% |
| 4 | 3 | Broadcom | 1,610 | 1,083 | 48.7% | 7.4% | 26.7% |
| 6 | 4 | ATI Technologies | 1,401 | 835 | 67.8% | 6.5% | 33.2% |
| 3 | 5 | Xilinx | 1,300 | 1,124 | 15.7% | 6.0% | 39.1% |
| Other Companies: | 13,204 | 11,390 | 15.9% | 60.9% | 100.0% | ||
| Total Revenue: | 21,697 | 18,185 | 19.3% | 100.0% | |||
Top 20 capital spenders
($ millions)
| Rank | Company | 2004 spend (budgeted) | 2003 spend | % change |
| Source: IC Insights |
||||
| 1 | Samsung | 4,100 | 3,550 | 15% |
| 2 | Intel | 3,800 | 3,650 | 4% |
| 3 | UMC | 2,120 | 739 | 187% |
| 4 | TSMC | 2,000 | 1,080 | 85% |
| 5 | SMIC | 1,950 | 492 | 296% |
| 6 | STMicro. | 1,600 | 1,221 | 31% |
| 7 | Infineon | 1,565 | 886 | 79% |
| 8 | Sony | 1,520 | 1,200 | 27% |
| 9 | AMD | 1,500 | 586 | 156% |
| 10 | Micron | 1,450 | 1,075 | 35% |
| 11 | Toshiba | 1,430 | 1,050 | 36% |
| 12 | Renesas | 1,400 | 800 | 75% |
| 13 | TI | 1,300 | 800 | 63% |
| 14 | Matsushita | 1,230 | 500 | 46% |
| 15 | NEC | 1,200 | 850 | 41% |
| 16 | Nanya | 1,140 | 600 | 90% |
| 17 | Hynix | 1,100 | 600 | 83% |
| 18 | IBM | 925 | 850 | 9% |
| 19 | Grace | 800 | 575 | 39% |
| 20 | Philips | 730 | 343 | 113% |
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