An inventory buildup, slowing demand and lack of visibility into how to weigh those two factors is hanging over the wireless chip industry as companies search for a way ahead.
As most handset vendors posted volume shipment decreases for the typically hot fourth quarter, one could envision their buyers cutting orders for components, particularly chips.
In fact, in November, iSuppli Corp. forecast that the global semiconductor industry contracted by 2%, a major revision of earlier projections it would grow by 3.5%. The wireless industry represents nearly 20% of global chip demand, but is one of the fastest-growing markets.
Most analysts have now joined Nokia Corp. in projecting at least 10% negative growth for handsets in 2009 – the worst year in the 25-year history of the modern cellphone age. And that has sent chip vendors looking for cost-management measures, inventory reduction and a glimpse through the smoke for signs of daylight.
Two recent signs that daylight remains difficult to discern:
Texas Instruments Inc., said last week it would cut 3,400 jobs or 12% of its workforce . Qualcomm Inc. said it currently had no plans for “widespread layoffs,” though it was making unspecified “workforce adjustments.”
The topic had to be addressed.
Last week, T.I. posted a 30% drop in revenue year-on-year and 95% drop in operating profit. Qualcomm’s revenue year-on-year was slightly better than flat and net income plunged 56%.
The first order of business is to clear inventory channels to get a better sense of demand, or lack thereof, according to vendors and analysts.
Qualcomm’s case illustrates the complexity of the chip business and the diversity of issues most vendors face.
Nokia may be a future Qualcomm customer for 3G chips, but current mainstay customers Samsung Electronics Co. Ltd. and LG Electronics Co. may lose ground to Nokia this year, according to Global Crown Capital L.L.C., as key Samsung and LG markets such as the United States and Korea generate lower-than-expected demand.
Netbooks to surge
Meanwhile, Qualcomm has placed emphasis on its Snapdragon chipset for notebooks, netbooks and mobile Internet devices, with the latter category projected to surge as netbooks bridge the price gap between laptops and handhelds.
Qualcomm will have competition, as Intel Corp. – the world’s largest chip maker – has targeted MIDs as PC sales rates slow, hoping to grab some of the market served by Apple Inc.’s iPhone. PC maker Dell Inc. is rumored to be preparing a smartphone play to open new markets.
Meanwhile, most chip vendors are looking to core strengths and seeking bright spots in the year ahead. Smartphone sales are projected to grow this year – analysts vary on the strength of that growth – and vendors who make GPS, Wi-Fi and Bluetooth chips and 3G modems have a fighting chance, analysts have observed.
“These are bright spots,” said Will Strauss, principal at Forward Concepts. “3G in general is still growing.”
