Semiconductor Spending Hits Five-Year High in 2017

Global semiconductor spending reached a five-year high in 2017, up 17 percent from last year, according to the latest research from IHS Markit. Industry watchers agree the increase in OEM spending was significantly impacted by the supply shortage and higher prices of memory devices, particularly DRAM and NAND flash, together with strong demand from data centers.

In 2017, the average selling price (ASP) for DRAMs rose by more than 40 percent, while NAND flash ASPs increased by nearly 40 percent, according to DRAMeXchange.

Worldwide spending in the served available market (SAM) rose from $250 billion in 2017 to $292 billion in 2017, according to IHS Markit. The market researcher’s database for OEM chip spending by SAM tracks only companies that generate $1 billion or more in annual revenue, so it doesn’t reflect the total value of the semiconductor market.

IHS defines SAM as “only expenditures that an OEM and its designated manufacturer or contractor made as an external agent, which gives a truer picture of the state of chip spending in the electronics industry.” SAM does not include OEM chip spending at in-house divisions. One example cited is Samsung Electronics, which has internal affiliates as customers that compete with external customers for Samsung-made parts.

Solid growth in chip spending across all markets also contributed to the uptick, according to IHS Markit. Wireless communications accounted for the largest share of chip spending at 38 percent, followed by computer platforms at 17 percent. Markets like automotive and industrial that typically have lower semiconductor consumption also saw higher spending as those sectors transitioned into internet of things (IoT) applications, according to IHS.

In addition to higher memory prices, growth in chip sending last year also can be attributed to OEMs spending more to meet higher demand for equipment and to deal with shortages and higher costs for other components including discretes and microcomponents, according to IHS analysts.

Higher demand from several sectors along with widespread shortages last year contributed to record sales. The global semiconductor industry recorded the highest annual sales in 2017, topping $400 billion for the first time, according to the Semiconductor Industry Association. Semiconductor sales increased 21.6 percent in 2017, reaching $412.2 billion. Fourth quarter sales also were the industry’s highest quarterly, reaching $114 billion, up 22.5 percent from the fourth quarter of 2016.

Dec 2017
Billions
Month-to-Month Sales
Market	Last Month	Current Month	% Change
Americas	8.77	8.95	2.1%
Europe	3.42	3.37	-1.6%
Japan	3.21	3.24	0.9%
China	11.90	12.01	1.0%
Asia Pacific/All Other	10.39	10.41	0.2%
Total	37.69	37.99	0.8%

Year-to-Year Sales
Market	Last Year	Current Month	% Change
Americas	6.33	8.95	41.4%
Europe	2.80	3.37	20.2%
Japan	2.84	3.24	14.0%
China	10.17	12.01	18.1%
Asia Pacific/All Other	8.86	10.41	17.4%
Total	31.01	37.99	22.5%

Three-Month-Moving Average Sales
Market	Jul/Aug/Sep	Oct/Nov/Dec	% Change
Americas	7.99	8.95	12.0%
Europe	3.28	3.37	2.8%
Japan	3.14	3.24	3.2%
China	11.36	12.01	5.8%
Asia Pacific/All Other	10.18	10.41	2.2%
Total	35.95	37.99	5.7%

Source: SIA and WSTS

"As semiconductors have become more heavily embedded in an ever-increasing number of products – from cars to coffee makers – and nascent technologies like artificial intelligence, virtual reality, and the Internet of Things have emerged, global demand for semiconductors has increased, leading to landmark sales in 2017 and a bright outlook for the long term," said John Neuffer, SIA president and CEO, in a statement. "The global market experienced across-the-board growth in 2017, with double-digit sales increases in every regional market and nearly all major product categories. We expect the market to grow more modestly in 2018."

Memory was the largest segment by sales in 2017, according to SIA, based on sales numbers from the World Semiconductor Trade Statistics (WSTS). The segment grew 61.5 percent, reaching $124 billion in 2017. DRAM product sales increased the most by 76.8 percent followed by NAND flash at 47.5 percent. Other fast-growing segments included logic, micro ICs, rectifiers, diodes and sensors & actuators.

Big Spenders

Similar to Gartner’s semiconductor spend ranking, IHS ranks Apple and Samsung as the largest buyers of semiconductors. Apple spent $47.3 billion on semiconductors, which is nearly twice that of Samsung’s $24.2 billion spend. Both companies have held on to their number one and two positions since 2013. Rounding out the top five are Lenovo ($15 billion), Huawei ($14.2 billion) and Dell Technologies ($9 billion).

“Samsung, the world’s biggest chip supplier, is also probably the world’s foremost buyer of semiconductors overall,” according to IHS. “Utilizing the SAM metric, however, any chip spending done by the internal divisions of the vast South Korean conglomerate does not count toward the total accredited to Samsung Electronics, the principal entity.”

The top 10 accounted for about $144.8 billion in chip spending in 2017, or about 50 percent of the global total. This is up slightly from 48 percent last year.

If supply and demand reach market equilibrium for memory components this year, IHS analysts expect prices will normalize and semiconductor spending will return to single digits in 2018.

IC Insights is forecasting strong demand again in 2018, with unit semiconductor shipments increasing by nine percent and exceeding 1 trillion device shipments. This follows a market rebound in 2017, growing by 14 percent in unit shipments to surpass the 900-billion level.

Semiconductor categories forecast by IC Insights to have the strongest growth rates this year are found in smartphones, automotive electronics systems and anything-related to IoT build outs. The fastest-growing categories include industrial/other—application-specific analog (up 26%); consumer—special purpose logic (up 22%); industrial/other—special purpose logic, (up 22%); 32-bit MCUs (up 21%); wireless communication—application-specific analog (up 18%); and auto—application-specific analog (up 17%).

Among opto-sensor-discrete (O-S-D) devices, CCDs and CMOS image sensors, laser transmitters, and all sensor products (magnetic, acceleration and yaw, pressure, etc.) are forecast to grow in the double digits.