Semiconductor Revenue Trends

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Nescire autem quid ante quam natus sis acciderit, id est semper esse puerum. (Not to know what happened before you were born is to remain forever a child.)–Cicero

2014 is destined to be a pivotal year for Silicon Valley and High Tech in general. End user markets have been stagnating or declining over the last several years – most notably, the HDTV and consumer PC markets. Even high flying segments such as tablets and smartphones have been slowing markedly, with the CEO of Best Buy complaining about collapsing tablet sales and cellphone service providers urgently promoting ever more aggressive smartphone pricing and service bundles to reignite momentum.

Yet according to most analysts, this is supposed to be a year of energetic recovery, in the way that 2012 and 2013 weren’t. The SIA has been enthusiastically proclaiming that they expect a new record year of revenues in 2014 for the semiconductor industry.

The situation is indeed puzzling. After all, the SIA reported 2013 was a record revenue year for the chip industry worldwide, with 4.8% growth to $318B. Yet at the next layer of detail, the news is less reassuring. The logic portion of semiconductors showed only a 0.4% uptick, with the overwhelming majority of revenue gains going to DRAM and Flash – in particular because of the memory chip supply shortage that carried over from 2012. Reports for 2014 have so far been encouraging, but the industry has yet again experienced memory shortages for at least the first half of this year.

The gross numbers are clearly not sufficient to gain a thorough understanding of how the chip business is faring. A more accurate assessment is possible by segmenting the industry according to markets served and technologies on offer, with a distinct prejudice against firms in the memory sector. To that end, I’ve assembled a portfolio of ten companies that span the gamut of market segments served by silicon – the three C’s (communications, consumer and computing), mobile computing (tablets & smartphones), ISM (industrial, scientific and medical), automotive and, finally, mil/aero. Technologies included are a broad mix of SoC, programmable logic, microprocessors and even systems & software with several systems houses thrown into the mix. From this selection, one can get a snapshot of the relative health of the logic portion of the chip sector, major systems markets served and the entire High Technology value chain.

What’s also vital for this data to have relevance is a historical perspective. To serve that purpose, I’ve compiled financial reporting information all the way back to Q1 2008. Please note that corporate financial statements are very often non-GAAP to exclude one-time charges or certain unpleasant liabilities (as well as to provide maximum room to spin the message for investor audiences.) Regardless of that fact, the numbers are still extremely useful for illustrating long term trends, and are presented below, with $B on the Y axis.

The amount of information on this graph is a bit overwhelming, but there’s a couple of things that leap out from it:

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