August 1, 2017
Samsung Electronics’ semiconductor unit posted Q2 sales of $15.7 billion and operating profit of $7.1 billion, surpassing Intel’s Q2 earnings of $14.8 billion and operating profit of $3.8 billion. This marks the first time in nearly 25 years that Intel has lost its No. 1 position in the chip-making market. Up until this quarter, Santa Clara, CA-based Intel has enjoyed a comfortable lead over Samsung’s chip unit, which got its start with a focus on mobile devices. The semiconductor industry is currently valued at $365 billion.
The Wall Street Journal reports that semiconductor market researcher IC Insights revealed the above findings, and that industry analysts predict Samsung will hold onto its new top position “at least through the end of this year as a shortage of memory chips persists.” “Samsung surpassing Intel as No. 1 has more to do with Samsung gaining market share than Intel losing,” said IC Insights Bill McClean.
Samsung’s success is based on two types of memory chips: NAND for data storage and DRAM, “which gives devices their multitasking speed by holding data needed in the short term.” DRAMeXchange, which tracks sales and prices, reports that NAND prices rose 50 percent and DRAM prices rose 115 percent “on the spot market over the past year.”
As supply is fulfilled, however, the need for these types of memory chips may dip, reducing Samsung’s earnings.
WSJ notes that, “Samsung’s rise reflects the trend toward putting digital horsepower in a widening range of items, from smartphones to automobiles, and the ambitions of tech companies to use those products to accumulate data on customer behavior to sell more products and related services.”
“This isn’t just a one-shot deal for Samsung,” said Fusion Worldwide executive vice president Tobey Gonnerman. “Technology won’t take a leap backwards or become less mobile, so this won’t be an anomaly for them.”
The rivalry between the two companies highlights the differences in their products. Samsung’s memory chip is “traditionally a lower-margin commodity product with volatile price swings,” but the South Korean company has “invested tens of billions of dollars to … cram more memory, either storage or multitasking ability, onto small-size chips.”
As a result, “analysts agree it is several years ahead of rivals, particularly in terms of its large-scale production ability.” Intel “concentrates on highly differentiated processing chips for computers — and dominates its key markets of PCs and the servers that drive corporate operations, cloud computing, and communications networks,” which produces high margins but, increasingly, slowing revenue growth “as consumers move from PCs to smartphones, and data-center customers have found ways to make fewer chips do more work.”