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Increasing Focus on Data Centers Impacts Semiconductor Earnings


Mar. 9 2016, Updated 11:07 a.m. ET

Changing trends in the semiconductor industry

We have seen that the PC and smartphone markets have witnessed a slowdown in the demand, as have the memory chip and semiconductor manufacturers that have exposure to these markets.

Semiconductor companies impacted by this trend are shifting their focus to high-growth areas such as data centers and automotive. Let’s shed some light on these new markets.

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Data center market

The data center market is dominated by Intel (INTC), which owns more than a 99% market share. Another player in this field is Advanced Micro Devices (AMD), which has been reporting declining revenues due to strong competition from Intel.

These two companies are likely to face competition in the long-term as other players such as NVIDIA (NVDA), IBM, and Qualcomm (QCOM) enter the market.

Old players

Amid slowing PC sales, Intel has been increasing its focus on the data center market. The company’s Data Center segment reported double-digit revenue growth in the first three quarters of 2015. However, the growth slowed in the fourth quarter of 2015 to 5% YoY (year-over-year) due to seasonally slow demand from the cloud customers. The company has acquired Altera to expand further in the data center market.

Xilinx (XLNX) reported a 3% YoY decline in revenue from the communications and data center division in 4Q15. It has partnered with IBM and Qualcomm to supply accelerators used in servers.

New players

NVIDIA reported 10.2% YoY revenue growth in 4Q15. The sales picked up speed after November’s Supercomputing 2015 Conference released data that showed that more than 100 of the top 500 fastest supercomputers in the world use accelerators, 67 of which use NVIDIA GPUs (graphic processing units).

Slowing smartphone sales have encouraged Qualcomm to look into adjacent markets such as the data center market. Qualcomm has signed a joint venture with China’s (FXI) Guizhou province to make server chips in the nation. According to IDC (International Data Center), the Chinese server market is expected to reach $6 billion by 2020.

In the next part of the series, we will learn how the shifting focus toward the IoT and automotive space is faring for semiconductor companies.


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