Inside Advanced Scale Challenges|Monday, July 16, 2018
  • Subscribe to EnterpriseTech Weekly Updates: Subscribe by email

Chip Market Faces Headwinds as Tariffs Loom 

Lightspring/Shutterstock

The global chip market, buoyed over the last several quarters by surging enterprise and storage demand for memory components, cooled during the first quarter as the industry braces for the impact of tariff dispute between China and the U.S.

Market tracker IHS reports that global chip revenues declined 3.4 percent during the first quarter of 2018 to $115.8 billion. Among the reasons for the slowdown was slowing sales in the wireless communications sector along with expected “seasonality” during the first quarter.

The quarterly numbers would have been worse if not for continuing strength in the memory sector, which continued to grow in the first quarter by 1.7 percent. Quarterly revenues totaled $39.7 billion. The market watcher said DRAM pricing and shipments continue to grow, with strong demand for DRAM server chips propping up an otherwise listless global chip landscape.

The NAND market was softer but may be poised for a rebound. “Even with the slight revenue decline during the quarter, the NAND market still achieved its second-highest revenue quarter on record, with strong demand coming from the enterprise and client solid-state drive markets,” said Craig Stice, senior director, memory and storage at IHS Markit.

Samsung Electronics (KRX: 005930) remains the world’s largest chip maker, having unseated Intel Corp.(NASDAQ: INTC) last year as the Korean giant rode a wave of surging memory chip demand. Meanwhile, GPU vendor Nvidia (NASDAQ: NVDA) remains among the top chip makers with first quarter revenues of $2.66 billion and an annual growth rate of 3.4 percent, IHS reported.

Micron Technology, number four in the IHS chip rankings, confirmed Thursday (July 5) that China is blocking sales of some of its memory products. A Chinese court granted a preliminary injunction earlier in the week banning Micron subsidiaries in China from manufacturing or selling two families of DRAM modules and solid-state drives.

Micron (NASDAQ:MU), the largest U.S. memory chip maker, is locked in a legal battle with Taiwanese chip maker United Microelectronics Corp. (NYSE: UMC) over alleged patent violations in China. Micron said the injunction covers only 1 percent of its revenue.

Still, the chip dispute reflects growing trade tensions between Beijing and Washington that threaten to spill over to the technology sector.

“The escalating tariffs dispute between the United States and China will be a bruising zero-sum game injurious to both sides in which there are no winners,” said Myson Robles-Bruce, an IHS semiconductor supply chain analyst.

“A tariff war between the world’s two biggest makers and consumers of semiconductors is likely to spread throughout the vast electronics supply chain involving multitudes of markets, trades, and businesses, and both American and Chinese companies could end up suffering,” Robles-Bruce warned.

Among the issues is the global nature of semiconductor design and manufacturing. While the majority of chips are still designed in the U.S., an increasing amount are manufactured in China. Hence, IHS estimates most of the $57.2 billion in revenue from chips used in the U.S. would be subject to tariffs under the Trump administration’s trade policies.

Hence, prices for electronics imported to the U.S. from China are expected to rise. “If the tariffs on electronics coming into the United States are too high, consumers there will lower demand,” Robles-Bruce said. “Should that happen, factories in China will then have to cut electronics production and lay off workers. This, in turn, triggers a boomerang effect back in the United States: US domestic semiconductor companies are bound to see lower demand as a result, followed by China reducing capacity for semiconductor manufacturing.”

About the author: George Leopold

George Leopold has written about science and technology for more than 30 years, focusing on electronics and aerospace technology. He previously served as executive editor of Electronic Engineering Times. Leopold is the author of "Calculated Risk: The Supersonic Life and Times of Gus Grissom" (Purdue University Press, 2016).

Add a Comment

Do NOT follow this link or you will be banned from the site!
Share This