Global semiconductor spending by the world’s top OEMs officially crossed the $300 billion mark for the first time following year-end tallying at the close of 2018.
Based on the latest findings from our recent report, Design Activity Tool – World + Regions – H2 2018, semiconductor spend for the served available market (SAM) reached $340.1 billion at the end of 2018, up 15.2% from $295.3 billion in 2017, as shown in the figure below.
The Design Activity Tool analyzes design spend, a measurement of OEM semiconductor spending, as influenced by the intensity of different R&D activities at distinct locations. The tool also includes the R&D Center Database, which contains detailed analysis of more than 5,000 global R&D locations from nearly 250 of the world’s leading electronic OEMs.
Of the $44.8 billion increase in chip spending this year, a staggering two-thirds of the total came from the memory IC segment. The extraordinarily high spending in memory IC was primarily due to steep pricing caused by supply shortfalls. The shortages began at the end of 2016 and continued until the second half of 2018, after which DRAM and NAND pricing started to exhibit signs of reduction.
Memory IC also held the lion’s share of OEM design spend in 2018, repeating the feat it achieved in 2017 when it surpassed logic IC to become the largest OEM design spend component.
The biggest gainer, however, was computer platforms, where share of spending rose to 20.6% by year-end 2018. The increase was spurred by solid spending in servers and mobile PCs, augmented by the heavy cost of memory in the first half of 2018.
For the players, the combined design spend in 2018 of the top 20 OEMs hit $224.2 billion, boosting their collective share of the market to 66%. The increase in combined expenditures is equivalent to $37.4 billion—close to 84% of the entire market’s approximately $45 billion gain.
Asia Pacific continued to dominate regional semiconductor design spend with 44.6% share, followed by the Americas with one-third of the total market. In contrast, EMEA and Japan lost share to the two largest regions as their portion of spending stabilized at 12.9% and 12.3%, respectively.
Among countries, India saw the biggest growth last year as design spend surged 18.2% from 2017 levels, boosting the country’s share of the global market to 5.3%. In a move to win India’s smartphone market while simultaneously deploying away from China’s challenging business climate, numerous Chinese OEMs as well as US giants like Apple have established plants and R&D centers in India.
India: the new China?
India’s attractiveness as a greenfield market to foreign investors and manufacturers has been rising, thanks to a steadily growing economy as well as increasing household incomes and expenditures. Two other factors—the ongoing tension in US-China trade relations and slowing growth in China—have made India the fortuitous beneficiary of current turmoil.
Moreover, India is benefiting from technology investments being made by Chinese and American companies in the country. For instance, Chinese electronics giant Xiaomi—already among the world’s biggest smartphone manufacturers—is fast expanding its smartphone business in India, with its “Make in India” commitment helping establish a solid and sizable component supply chain in the South Asian giant. Xiaomi now makes its products, including smartphones and smart LED TVs, through Taiwanese electronics contract manufacturing firm Foxconn, at six sites in India to meet local Indian demand for Xiaomi electronics.
Other electronic manufacturers will be able to tap into this groundwork for the supply chain laid by Xiaomi’s expansion effort in India, further driving component demand and fueling growth among local Indian suppliers—part of an overall boost to business activity projected to lift India.
For its part, Apple is expected to start manufacturing the company’s flagship iPhone X family of devices in India this year, also through Foxconn. The move indicates Apple is diverting focus away from China to other sizable and fast-growing economies like India, as the benefits of doing business in China diminish.
The establishment and continued expansion of a diverse supply chain, coupled with the increasing skill levels of workers in India and the country’s relatively low labor costs, means India will likely be able to capture more manufacturing investments leaking out of China.
For more information on our latest Design Activity Tool report as well as the R&D Center Database, visit our website. IHS Markit subscribers also have access to our overall Semiconductors research service, covering Semiconductor Components, Semiconductor Manufacturing. and the Semiconductor Market, among other areas.