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Chips Slump as Drivers Falter

Growth rates for tablets, smartphones and PCs are all down this year. It is expected that they will rebound in 2016 and beyond, but not strongly. While some are looking at the Internet of Things to become a driver for chips, market experts do not consider this a likely prospect.

The cause for the slump in chip sales, according to Gartner semiconductor analyst Jim Walker, is that the big three drivers are all slowing down. Industry growth is expected to be single digit, between 4 and 7 percent, for several years.

PCs were a driver because they packed lots of chips. Smartphones used fewer, typically cheaper chips but they sold in much higher volumes. PC sales are expected to show a decline, including a 1.9% drop in the ultramobile segment, which was up as much as 15.2% in 2014. It is expected that mobile phone sales overall will be about flat at 0.7% growth for 2015.

Walker added that only organizations supplying Apple would be doing well this year. He also noted the broad range of mobile phones on the market. Low-end models are available with as little as $24 in components. The latest iPhones, on the other hand, sport an estimated $202 in chips and displays. Much of Apple’s margins are in reselling memory chips, with the company charging a premium of around $100 for versions of iPhones with 64 Gbytes of flash despite the cost of a 64-Gbyte SD card being only $20.

As a reaction to uninspiring figures, people have been looking to the Internet of Things to be the next big driver, but market watchers do not believe that the Internet of Things will revive the market. Wearables are growing at a 25% rate, for example, but this will represent only 1% of the semiconductor market in 2019. The reason for this is that they utilize few, very inexpensive chips.

There has also been much talk of driverless cars being the driver of the semiconductor industry, but this is unlikely to be the case for the same reasons as with the Internet of Things. The US is expected to have turned out about 17 million cars in 2015, up from about 15 million previously. Each car contains as much as $400 in semiconductor content, but the whole sector represents only around 8% of the total chip market.

According to Walker, the driver of the semiconductor industry has yet to be determined. While nothing on the horizon appears to have the makings of a new driver, the solution might come from left field.

“No one knew ten years ago the tablet would be a driver,” Walker said.

The next big driver, in whatever form it takes, might still be in development.