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But the outlook for the semiconductor market is improving. "The worst appears to be over, with a stronger outlook for the remainder of 2016 driven by inventory replenishment and increasing average selling prices (ASPs) in select markets," said Jon Erensen, research director at Gartner, in a release. "Improving conditions in the commodity memory market contributed the most to the improved outlook based on stronger supply-and-demand dynamics."
Indeed, DRAM and NAND are both predicted to be in short supply in Q4 and prices are expected to increase. The global average contract price of PC DRAM increased 7.4 percent in September, reaching $14.50, according to DRAMeXchange, a division of TrendForce. Spot pricing for DRAM chips also rose significantly in September, up by as much as 19 percent.
The tight supply is attributed to the DRAM industry’s shift to mobile DRAM production in the third quarter, expanding the share to 40 percent of its overall output, according to DRAMeXchange. This reduced the output share of PC DRAM to less than 20 percent. Demand for NAND flash -- already in short supply -- is expected to increase thanks to smartphones and solid-state drives (SSDs). The shortage, coupled with strong demand, will contribute to rising prices of NAND flash wafers and memory cards until the end of 2016.
After an inventory correction started the year off slowly, the ramp up to the iPhone 7 launch and the build for the upcoming holiday season has spurred on the market in the second half of 2016, according to Gartner’s Erensen. “However, in many cases the inventory correction was too steep, and the industry is experiencing shortages and is scrambling to increase supply." TrendForce concurs: “Sales of iPhone 7, though have not achieved records comparable to the sales of previous iPhones, have been steady and are at an expected level. More importantly, the upgrade of iPhone 7’s storage options (a doubling of capacity for each of the three options) represents a several-fold increase in Apple’s consumption of NAND Flash."
Key electronic equipment markets have bottomed and stabilized, which has contributed to the stronger outlook, and in some markets, most notably smartphones and video game consoles, production estimates have been revised up for 2016, according to Gartner. Smartphone demand has remained fairly strong and is the main reason why the NAND Flash market started to boom in the second half of 2016, TrendForce said.
However, PC demand has continued to decline, contributing to the overall sluggish demand for chips. Worldwide PC shipments totaled 68.9 million units in the third quarter of 2016, a 5.7 percent decline from the third quarter of 2015, according to Gartner. This was the eighth consecutive quarter of PC shipment decline, the longest duration of decline in the history of the PC industry.
PC manufacturers faced many challenges, which included weak back-to-school demand, and ongoing low demand in the consumer market, especially in emerging markets.
"There are two fundamental issues that have impacted PC market results: the extension of the lifetime of the PC caused by the excess of consumer devices, and weak PC consumer demand in emerging markets," said Mikako Kitagawa, principal analyst at Gartner, in a release. "According to our 2016 personal technology survey, the majority of consumers own, and use, at least three different types of devices in mature markets. Among these devices, the PC is not a high priority device for the majority of consumers, so they do not feel the need to upgrade their PCs as often as they used to. Some may never decide to upgrade to a PC again." In emerging markets, he added, consumers primarily use smartphones or phablets for their computing needs, and they don't find the need to use a PC.
And the outlook for emerging opportunities for semiconductors in the Internet of Things (IoT) and wearable electronics remains choppy in 2016. These markets are still in the early stages of development and too small to have a significant impact on overall semiconductor revenue growth this year and 2017, Gartner conlcuded.