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In case we ever needed proof that we’re entering the Digital Age… the microprocessor market grew by 16.8% to $301b in the year to the end of March 2018, while shipments grew by 21.5% to 33.8b and net profit, by 41.1% to $60b. In the quarter revenues increased by 17.4% to $75.4b, units by 14.6% to 9.0b and net profit by 70.6% to $61b.
There are of course many different types of chip – my Figure shows a breakdown in detail, showing that DRAM memory is the biggest single type, accounting for $46b in the year. Other major offerings are x86 PC and server processors and ARM mobile chips.
Table – Microprocessor market by type – unit shipments, revenue, net profit ($US billion) and profitability – year to end of March 2018
| Unit (b) | Revenue ($b) | Profit ($b) | Profitability | |
| Processor | 23.3 | $121.6 | $13.0 | 11% |
| Memory | 1.4 | $64.3 | $19.9 | 31% |
| Network | 3.8 | $52.8 | $15.4 | 29% |
| Peripheral | 4.2 | $41.4 | $8.5 | 20% |
| Other | 1.0 | $21.0 | $3.9 | 18% |
| Total | 33.8 | $301.1 | $60.7 | 20% |
Source: ITCandor, 2018
Summarising these into broader categories (see my Table) shows that processors in total are the largest category in terms of unit shipments and revenue, although memory chips created more net profit for their suppliers in the year. Network chips had the highest profitability. Overall the profitability of this sub-market stood at 20% – greater than almost all products which are sold to users as opposed to other IT and communications vendors, as these are.
The suppliers are split 63:37 between those that are designers making money from licencing their patents and fabricators who have to invest multiple billions (usually supported by government investments) in building manufacturing plants, with a decreasing few (such as market leader Intel) fulfilling both roles. Most older suppliers have gone ‘fabless’, leaving the manufacturing of these products to large specialists such as TSMC, UMC and GlobalFoundries. We started the year with Broadcom (newly created by the acquisition of the company by Avago) bidding ferociously for Qualcomm – a process halted by the intervention of President Trump, which underlines the influence that ‘new nationalism’ is having on our global industry.
My Figure shows market shares for suppliers and chip type for the year to the end of March (difficult due to the mixture of fabricators and designers). Intel was the top supplier, achieving a market share of 18.9% for the year. Predominantly these are Far Eastern companies with deep pockets. They are reaping the benefits of their investments by making strong profits – enhanced by the reduction in US rates brought in by the Tax Cuts and Jobs Act. Many microprocessor types have consolidated leaving 2 or 3 vendors in charge of world production. Those with virtual monopolies keep prices high, while the products they supply experience ‘stochastic’ peaks and troughs of sales depended on the wait for new products.
In the last year there were 33.8b microprocessor shipments – the equivalent of 5 for everyone alive on our planet and proof that we are indeed entering the Digital Age.
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