It's Official: There's a New Chip King in Town


Apple has been losing titles left and right. This time, it's Samsung that has taken another title from Apple by becoming the world's largest semiconductor customer. According to Gartner, Samsung spent $23.9 billion on chips in 2012, where Apple only spent $21.4 billion. As a whole, the industry saw a 3% year-over-year decline in semiconductor demand due to dwindling PC sales, but Samsung and Apple enjoyed a 21% increase in demand, thanks to rise of mobile computing. Combined, both companies made up 15% of total semiconductor demand in 2012.

The shift from PC to mobile computing has collectively hurt chip demand because there are far fewer semiconductor components in a tablet or smartphone than a PC. This has hurt Hewlett-Packard , which saw a 13% decline in chip demand since 2011, contributing to its 5% decline in annual revenues. When demand tapers off like in HP's case, not only can it hurt the top line, it has the potential to hurt its economy of scale, which could likely have a negative impact on profit margins.

Dell saw its chip demand fall by about 13%. However, unlike HP, the company was able keep revenue essentially flat between years because it was more successful at mitigating the impact of a weakened PC market. Last quarter, only 18% of the company's revenue was directly tied to the consumer facing PC market.

The worst of them all was Nokia , which experienced a 43% decline in chip spending since 2011, dropping its rank from the No. 5 position to No. 10. Investors have grown concerned that Nokia's feature phone business is getting eaten up by Android, which continues to move down market. Last quarter, Nokia's feature phone segment experienced a 15% decline in volume and a 19% decline in revenue, indicating that pricing pressures are mounting.

Watch the king
Given Samsung's acquisition history in 2012, the company is in the midst of becoming more self-reliant on its own foundries as it continues to grow its in-house capabilities. Integrating a 4G LTE modem directly into its Exynos mobile processor is one way Samsung hopes to accomplish this. This move would likely threaten Qualcomm's Snapdragon line of processors, which happens to be one of the only currently available processors that has integrated 4G LTE directly onto the chip. For the time being, Qualcomm is in no immediate danger, but as Samsung gets closer to reaching this integration goal, it would likely become a greater threat to Qualcomm's processor business.

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