The tax policy proposed by President-elect Donald Trump may benefit the US semiconductor industry, but its restrictions on trade with China could hamper growth. Aside from these macroeconomic factors, the semiconductor industry’s growth will also depend on end-consumer demand.
The computer space is the second-largest end market for the semiconductor industry, and it’s dominated by Intel (INTC), which has more than 80% of market share. Advanced Micro Devices (AMD) is Intel’s closest competitor, with less than 20% of market share.
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As seen in the above graph, PC sales have been falling since 2011, and the semiconductor industry has been plagued by this fall. PC processor giant Intel has shifted its focus toward the data center and IoT (Internet of Things) spaces for growth.
Gartner expects PC sales to remain flat between 2017 and 2019. Within the PC market, the demand for desktop processors and traditional laptops is expected to fall, whereas the demand for premium ultramobile and two-in-ones is expected to rise. Hence, PC shipments in terms of units are likely to fall, but PC revenue is expected to remain stable in 2017.
A rise in PC sales is unlikely, as smartphones and tablets have replaced PCs for many basic internet users. Moreover, the lifetime of the PC is increasing. The average consumer uses a minimum of three types of devices, removing the need for consumers to consistently upgrade their PCs. Microsoft’s (MSFT) Windows 10 failed to revive PC demand in 2016.
This changing trend has helped Intel’s client computing group to post profits, but it’s pushed AMD’s PC segment toward losses. Intel dominates the high-end PC market, leaving the low-end PC space for AMD.
AMD is now gearing up to give Intel a run for its money in the high-end PC space. In 1H17, AMD will launch its Zen processors, which will compete with Intel’s 14nm (nanometer) x86 processors, delivering a similar performance. Such competition will likely be welcomed by customers, as this could give them the power to bargain with Intel.
However, AMD has to take caution, as Intel could respond with better products or pricing. 2017 will be an important year for AMD, as it will either gain or lose share in the PC processor market.
Next, let’s look at consumer demand in the smartphone space and its impact on the semiconductor industry.