In the year to the end of June 2019 the worldwide microprocessor chip market was worth a staggering $317 billion. Sales have been somewhat cyclical, with declines in the first two quarters of 2019 balancing the strong growth in 2018. She my Figure above for quarterly revenue and unit shipment growth by quarter since the beginning of 2011.
Due to the massive costs needed for fabrication the chip market is highly profitable. My Figure above compares the revenues, net profit and profitability of chips of different types. The most profitable chips to make are DRAM, Graphics (one reason Nvidia has enough money to buy Mellanox perhaps), NAND and mobile network types. Mobile chips are mainly ARM-designed products which fit into smart phones; they were the least profitable type in the last year; however the 11% profitability is significantly higher than most other hardware components or end products.
Intel is still the leader of the chip market, having gained most from the boom in PC sales decades ago. It has diversified well over the years to maintain its position and differs from many other suppliers in being both a designer and fabricator of its products. Most chip suppliers are either just fabricators (TSMC, GlobalFoundries, UMC), or designers (Nvidia, AMD, ARM/Softbank). 63% of the total market revenue of chips went to design – and 37% to fabrication – functions.
This market continues to be affected by merger and acquisition activities. For instance:
- Softbank bought ARM in 2016
- Cavium was bought by Marvell in 2017
- Broadcom bought CA in 2018
- Kaga Electronics took 70% ownership of Fujitsu Semiconductor in 2018
- Marvell acquired Avera Semiconductor from GlobalFoundries in 2019
- Nvidia bought Mellanox in 2019
While the rumour mill continues to turn… that GlobalFoudries, AMD and Symantec are acquisition targets for the Chinese government, Samsung and Broadcom respectively, for instance…
In the latest quarter Apple paid Qualcomm $4.7b as a result of their long-running legal dispute and Micron posted poor results partially due to the trade ban on selling technology to Chinese companies (specifically Huawei). Technically 7nm process size was a game-changer for IBM, who swapped suppliers from GlobalFoundries to Samsung in order to get what it wanted. I expect the market to grow significantly again once 5G products begin to ship in quantity, favouring particularly wireless networking and mobile processors.
This is a fascinating market sector where the stakes are high. Its global nature makes it particularly prone to trade wars, which are increasing with the growing new nationalism I’ve been writing about for the last few years.
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