Samsung Displaces Intel Atop Semiconductor Market

For the first time in 26 years, Intel is no longer the No. 1 chip maker, Gartner says. But that may not last for long.

Intel chip

In what has already been a particularly bad week for Intel, Gartner analysts said the company for the first time since 1992 is not the world’s largest semiconductor maker. Instead, that crown now belongs to Samsung Electronics, due in large part to a shortage of product in the memory market that drove up prices. Samsung is the No. 1 supplier in the memory space.

"Memory accounted for more than two-thirds of all semiconductor revenue growth in 2017, and became the largest semiconductor category,” Andrew Norwood, research vice president at Gartner, said in a statement.

The memory market saw a 64 percent increase in revenue in 2017, accounting for 31 percent of all semiconductor revenue, Gartner found. NAND flash prices jumped 17 percent over 2016, and DRAM prices jumped 44 percent.

Samsung’s semiconductor revenue increased 52.6 percent in 2017, hitting more than $61.2 billion. Intel, in second, saw revenue rise 6.7 percent, to more than $57.7 billion. Samsung’s share of the market was 14.6 percent; Intel’s 13.8 percent. All but one of the vendors in the top 10 saw revenues grow between 10.7 percent (Qualcomm, in fifth place) and 120.2 percent (Western Digital).

Only NXP, in 10th, saw a decline, of 7 percent. Qualcomm officials had expected to close the company’s $47 billion deal for NXP in 2017, but regulatory hurdles slowed the process. At the same time, Qualcomm is now trying to fend off a hostile $105 billion takeover by Broadcom (which was No. 6 on the list of semiconductor vendors in 2017, with almost $16 billion in revenue, a 17.1 percent increase).

Worldwide, semiconductor revenue hit $419.7 billion last year, a 22.2 percent increase over 2016.

Analysts had expected Samsung to overtake Intel as the top semiconductor vendor due to the increase in memory prices. Patrick Moorhead, principal analyst with Moor Insights and Strategy, told eWEEK that for about a quarter-century, the trend in both storage and memory silicon had been “feast or famine.” Every couple of years the industry ramps up production, prices fall and vendors lose money. Then production slows, inventory tightens and prices go up.

Gartner’s Norwood, in a similar way, predicted that Samsung’s time in the top spot may not last long.

“Samsung’s lead is literally built on sand, in the form of memory silicon," Norwood said. "Memory pricing will weaken in 2018, initially for NAND flash and then DRAM in 2019 as China increases its memory production capacity. We then expect Samsung to lose a lot of the revenue gains it has made."

Moorhead said the industry is seeing the two leaders essentially pursuing different goals.

“Samsung is going for scale, and I don’t think Intel is playing the scale game anymore,” he said. “Intel is a bigger player, but Intel is not a scale player. I am expecting that Intel is targeting the higher end.”

Samsung is using its strength in memory to push other players like Toshiba out of the mainstream of the market and into niches, giving it a stronger cost base and the ability to cut prices to put more pressure on competitors. Intel is happy to be something of a niche player, with its focus on higher-performance type of flash, the analyst said.

It’s also an issue of risk tolerance, he said. Samsung is taking a high risk in assuming that the high capital expenses the company is putting out to drive memory production will result in long-term and lasting gains in the market. Meanwhile, even though Intel CEO Brian Krzanich said last month that the company would take more risks in 2018 and beyond as it continues to move into such areas as the internet of things (IoT), 5G and artificial intelligence (AI), the chip maker’s conservative stance can be seen in the development of its 14-nanometer and 10nm products, Moorhead said.

Samsung’s efforts also will help further drive competition in what is already a competitive market, he said.

“Intel performs better when they have higher levels of competition,” Moorhead said. “They haven’t said it, but I don’t think Intel likes to be second in revenue.”

The increased competition also will be felt by companies in the chip foundry space like Taiwan Semiconductor Manufacturing Co. (TSMC) and Globalfoundries as Samsung grows its foundry capabilities.