South Korean technology giant Samsung Electronics Co. has stolen Santa Clara, Calif.-based Intel Corp.’s (INTC) position as the world’s No. 1 chipmaker in terms of revenue. Samsung, most well-known for its smartphones and televisions, reported second-quarter sales of $15.7 billion for its semiconductor unit and operating profit of $7.1 billion. For the first time, Intel fell behind its Asian rival with Q2 chip revenue of $14.8 billion and operating profit of $3.8 billion. Samsung mainly generates its chip segment revenue through selling memory chips used in mobile devices, as opposed to Intel, which focuses on microprocessors. Gains on NAND and DRAM Memory ChipsAfter nearly a quarter-century at the helm, Intel is expected to trail behind Samsung at least through the end of this year amid a memory chip supply squeeze. The resultant hike in prices has benefited Samsung disproportionately as it has become a major player in the data storage space, manufacturing highly demanded NAND and DRAM chips. While NAND prices have surged 50% over the past year, DRAM prices have gained 115% over the same period, according to DRAMeXchange. While memory chips have historically been a lower-margincommodity, characterized by volatile price swings, Samsung has invested billions of dollars in efforts to lead the next-generation of the industry with small-size chips that offer immense storage and multitasking ability. The company now benefits from its ability to carry out large-scale production as the Internet of Things (IoT) drives a boom in demand for data storage. On the other hand, Intel’s higher-margin processing chips, used for the PCs and servers that run corporate operations, cloud computing and communications networks, are less of revenue drivers as PC demand slows and data center customers find means to make fewer chips do more work. The world’s leading smartphone maker, Samsung, is also slated to surpass Apple Inc. (AAPL) in quarterly profits when the Silicon Valley firm posts its Q2 results on Tuesday. (See also: Why Intel Is Falling as AMD, NVIDIA Surge.) Read More Samsung Blows Past Intel as World's Biggest Chipmaker : http://ift.tt/2uOXseO
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Two of the best-preforming stocks over the past year have been those of chip manufacturers Advanced Micro Devices (AMD) and Nvidia. AMD’s most recent surge can be at least partially credited to the boom in ethereum, a cryptocurrency second only to bitcoin in its market value, and the miners who use its graphics chips to process their mining calculations. Some are even renting jumbo jets to ship cards from AMD and Nvidia directly to their mining operations as quickly as possible. Nvidia’s graphics chips are being used in just about every future-looking technology application—apart from cryptocurrency mining, they’re massively popular in machine learning setups, and just about every other form of AI research, including self-driving cars, autonomous drones, and augmented reality. Since January 2016, its stock has skyrocketed from around $29 to over $160—a gain over over 570%. Both AMD and Nvidia’s graphics chips have been around for years—their devices do the heavy lifting in rendering graphics on computers, especially when playing video games—but their recent reapplications in new computing fields has seen their values explode. It’s the the first time for AMD—it, like Intel, had a massive spike around the turn of the millennium, as the desktop computer and the internet began to proliferate around the world. It was soon after that every company began to believe that they could run viable businesses on the internet, in some cases, just because they had a good dot-com name—instead of profits. After the dot-com bubble burst, many of the firms responsible for building the computer technology these companies relied on suffered. Intel and Qualcomm’s stock prices were decimated. Intel failed to see the shift in the computer industry from desktop to mobile, and it, along with Nvidia and AMD, were left in the mid-2000s wilderness at a time when Qualcomm, which went on to produce the processors in many of the world’s mobile devices, started to thrive. Intel is still searching for its next great business line, and laid off 12,000 workers last year. But now, around 16 years after that bubble had burst, Nvidia’s stock price is more than double what any chip manufacturers’ stock was valued at around the height of the boom. At the same time we have companies like Snap, Twitter, and Blue Apron that have gone public, all without clear plans for how they will ever turn a profit, and in some cases, offering stock without any shareholder voting rights. Time, it seems, is a flat circle. Move over, Intel Corp. (INTC): there is a new crop of semiconductor companies taking center stage, and they aren’t churning out chips for the personal computing market. These emerging leaders—NVIDIA Corp. (NVDA), Samsung Electronics (SSNLF) and Qualcomm Corp. (QCOM)—are playing in burgeoning industries such as artificial intelligence and cloud computing, places Intel hasn’t been able to make a big dent. Take AI: While the technology is just taking off. it’s expected to be a huge market with computers doing everyday tasks quicker and better than humans. Incorporating AI into existing systems and programs as well as developing new ones requires complex semiconductors. All of the major chip companies are going after the market, but one is becoming a clear leader in the area—chipmaker NVIDIA. It’s been making a big push into the area, most recently giving AI researchers its Tesla V100 graphic chips, which runs on Volta, its new graphic processing architecture, during the recent Conference on Computer Vision and Pattern Recognition (CVPR) in Hawaii. Its potential has gotten Wall Street and investors giddy over the stock, with Citigroup saying AI will provide more upside to shares and that the company is in the early stages of transitioning from a PC graphics chipmaker to a leader in that space. The analyst is so positive on the company he set a bull case price target of $300, arguing that at current levels investors are not factoring in continued growth in data center sales, the opportunity in the automotive market and the impact AI will have. Intel is also a player in AI, but its efforts haven’t taken off in a big way as of yet, and Wall Street haven't been expressing the same optimism. (See more: Why Intel Is Falling as AMD, NVIDIA Surge.) Who Isn't a Chipmaker Now?But it's not just AI that is expected to drive the growth of semiconductors and displace Intel. With more companies moving their computer software and hardware to the cloud, companies are turning to ARM processors to power the systems. ARM chips are cheaper and require less power to run than alternatives offered by Intel. In a major blow, Microsoft Corp. (MSFT) announced in March it would team with Qualcomm to begin using chips developed by ARM Holdings in its servers. In an interview with Bloomberg News, Jason Zander, vice president of Microsoft’s Azure cloud unit, said at the time that it had created a Windows Operating System for servers that runs on ARM's processors instead of Intel's. And in what is likely to shake investor confidence, Samsung Electronics, the South Korean consumer electronics giant, for the first time ever surpassed Intel in the second quarter to become the world’s largest semiconductor producer, with rising prices for memory chips used in mobile devices partly the reason for its latest milestone. It doesn’t help that Alphabet Inc.’s (GOOG) Google is also getting into the semiconductor manufacturing game, putting pressure on the leader. (See more: Intel, Nvidia Face Chipmaking Threat From Google.) Read More Intel Edged Aside on Rise of AI, Cloud Computing : http://ift.tt/2vlFEtfWells Fargo chip analyst David Wong this morning reiterates Outperform ratings on Intel (INTC), AMD (AMD), and Micron Technology (MU), after concluding they are the only names to own as semiconductor sales growth heads toward a “plateau." “Most chip companies that have reported earnings in the last two weeks have guided to September quarter year/year growth that is similar to or below June growth,” writes Wong, "indicating, we think, that chip industry year/year growth might have reached a plateau." Wong cuts his rating on the sector overall to Market Weight from Overweight, writing that "the prices of many chip stocks already reflect the recovery that has played out over the last year,” since March of 2016, when he first raised his rating to Overweight. "Global chip sales did begin to show year/year growth in the month of July 2016,” notes Wong, "and chip year/year growth continued to rise through 2016 and into 2017, together with chip stock prices." "We now think this positive thesis has largely played out and we are lowering our sector rating accordingly." Wong’s looking for proof of the slowdown: "In month of June global chip shipment data scheduled for release by the Semiconductor Industry Association (SIA) we will be looking for evidence of that chip industry growth is reaching a plateau." In the meantime, he points out the negative implications of recent remarks by Taiwan Semiconductor Manufacturing (SM): Taiwanese foundry composite (TSMC + UMC) revenues decreased 5% sequentially and increased 4% yr/yr in the June quarter (in US dollar - USD terms). We calculate that guidance from TSMC and UMC implies combined TSMC+UMC sales could increase 13% sequentially in the September 2017 quarter and be flat yr/yr. We think that semiconductor growth overall may well be leveling off as suggested by TSMC and UMC’s decelerated year over year growth in the June quarter and with guidance from both companies suggesting sales could be flattish year/year in the September 2017 quarter. TSMC reported June quarter sales of NT$213.86 billion (down 8.6% sequentially and down 3.6% year over year). And Wong offers the following info-graphic of the semi sales cycle: Wong also has an Outperform rating on shares of Skyworks Solutions (SWKS) and Miscrosemi (MSCC). He notes Qorvo (QRVO) could be another negative data point: "In the coming week, Qorvo is scheduled to report earnings. We think that the large sequential sale jump needed in the September quarter for Qorvo to just get back to flat year/year sales growth creates some expectations risk for Qorvo." Shares Intel are up 13 cents at $35.44 in early trading. AMD is up 13 cents at $14.08. Micron stock is up 12 cents at $29.36. Read More Intel, Micron, AMD Only Ones to Own as Chips 'Plateau,' Says Wells : http://ift.tt/2f0IJrOEarlier this month, chip giant Intel (NASDAQ:INTC) introduced its Xeon Scalable processor family for data center applications. Intel seems extremely proud of this new family of chips, marketing it as the "industry's biggest platform advancement in a decade." On the company's July 27 earnings call, management provided some insight into the customer reception for this product as well as how investors should expect shipments of the product family to ramp up over time. Let's see what management had to say. High enthusiasmIn prepared remarks, Intel CEO Brian Krzanich said that "the enthusiasm for Xeon Scalable resulted in [Intel's] largest early ship program ever." Intel's "early ship," for those of you unfamiliar with it, is a program under which Intel will sell major data center customers pre-PRQ parts -- that is, products that haven't yet been formally qualified for sale -- ahead of the formal product launch. This program was seemingly previously limited to the Super 7 cloud service providers, but Intel says that for Xeon Scalable, it shipped 500,000 units to about 30 customers under the early ship program for Xeon Scalable. Later in the question-and-answer session, Krzanich indicated that Intel expected to see a "large ramp" of these Xeon Scalable parts in the second half of 2017 and that this ramp-up would "continue on into 2018 as well." 2018 should be even bigger for Xeon ScalableAnalyst Harlan Sur wanted to know "how much of the data center growth in June was the initial production revenue shipments of Xeon Scalable." I suspect that he was interested in the answer to this as it might give investors some insight into how much opportunity remains -- given Intel's fairly substantial early ship program -- for the Xeon Scalable processors to engender both upgrades as well as an upward shift in product mix. If the proportion of Xeon Scalable shipped during the quarter were substantial, then some investors and analysts might think that Intel's data center group business might see any benefit from the new product ramp cut a bit short relative to typical new product ramps. On the flip side, if the percentage isn't that large, then investors could still believe that the Xeon Scalable upgrade cycle has legs. Krzanich declined to give a hard percentage in response to Sur's question, but he did say that "it's very little." "But I can genuinely tell you that it is really just the beginning of the ramp of the Xeon Scalable," he said, seemingly understanding the heart of Sur's question. "And, so, its impact into Q2 was minimal at best." The executive went on to indicate that the percentage of Xeon Scalable as a percentage of Intel's overall Xeon processor shipments will continue to grow during the second half of 2017, with the "big volume" happening in 2018. "So that's when it really takes over from the way the data center [business] looks from a revenue and profit standpoint," Krzanich explained. Read More Intel Corporation Talks Xeon Scalable Ramp-Up : http://ift.tt/2hgb9yrOn July 27, chip giant Intel (NASDAQ:INTC) announced its second-quarter results and filed its form 10-Q for the quarter. In combing through the form 10-Q, I came across two notable bits of information. Let's look at them. Writedown of Spreadtrum investmentIn 2014, Intel announced that it planned to invest up to $1.5 billion to acquire about 20% of China-based mobile-chip specialist Spreadtrum from Tsinghua Unigroup. The company also, according to its most recent 10-Q filing, said it "entered into a series of agreements" with Tsinghua Unigroup "to, among other things, jointly develop Intel architecture- and communications-based solutions for phones." Intel says that in 2015 it plunked down $966 million "to complete the first phase of the equity investment" in Spreadtrum. The company doesn't appear to have completed the rest of the investment, and it's not clear whether it still intends to. The interesting thing in the second-quarter 10-Q filing related to this Spreadtrum deal is that the company "reduced [its] expectation" of Spreadtrum's future business performance because of "competitive pressures." This, Intel says, led to a $147 million "other-than-temporary" impairment charge. Intel's luck with its mobile-related investments, either organic or inorganic, seems to be rather poor. Explaining Intel's Internet-of-Things group performanceIntel reported that its Internet-of-Things group (IoTG) saw 18% revenue growth year over year to $720 million. Its IoTG platform-related revenue (e.g., CPUs and chipsets) was up 17% to $614 million, while its non-platform revenue in the segment surged 26% to $106 million. Intel says $96 million of the total $148 million year-over-year revenue increase came from "higher IoTG platform unit sales" and that $21 million of that increase was due to "higher IoTG platform average selling prices from [a] richer mix of products sold." A "richer mix of products sold" means Intel's IoTG customers bought higher-end products during the quarter than they did in the year-ago period. The operating income in this segment grew to $139 million during the quarter, up from just $89 million in the prior quarter. In terms of operating-margin percentage, Intel saw an expansion from 15.6% in the same period a year ago to 19.3% -- a nearly 400-basis-point improvement in operating margin. The company says the bump in operating income was "driven by higher gross margin from IoTG revenue, partially offset by higher investment in autonomous driving and increased share of technology development and MG&A costs." MG&A stands for "marketing, general, and administrative." This line item is also commonly referred to as SG&A, for "sales, general, and administrative." The increase in operating income resulting from higher sales is to be expected, but such a large expansion in IoTG operating margin, even as the company both increases its investments in autonomous driving and burdens the IoTG segment with a larger chunk of the company's shared costs, is impressive. I wouldn't be surprised, given the commentary around richer product mix, if Intel, in addition to seeing higher average selling prices in this segment, saw higher average gross profit margin on the products it sold here. Intel's IoTG is delivering strong revenue growth and expanding profit margin. Though it's small today, this segment is consistently proving its worth within the Intel business portfolio and, over the long term, should autonomous driving become a big thing, could become a fairly large part of Intel's business. Kudos to the Intel IoTG team. Read More 2 Tidbits From Intel Corporation's Quarterly Report : http://ift.tt/2hgu7FrEarlier this month, chip giant Intel(NASDAQ: INTC) introduced its Xeon Scalable processor family for data center applications. Intel seems extremely proud of this new family of chips, marketing it as the "industry's biggest platform advancement in a decade." On the company's July 27 earnings call, management provided some insight into the customer reception for this product as well as how investors should expect shipments of the product family to ramp up over time. Let's see what management had to say. High enthusiasmIn prepared remarks, Intel CEO Brian Krzanich said that "the enthusiasm for Xeon Scalable resulted in [Intel's] largest early ship program ever." Intel's "early ship," for those of you unfamiliar with it, is a program under which Intel will sell major data center customers pre-PRQ parts -- that is, products that haven't yet been formally qualified for sale -- ahead of the formal product launch. This program was seemingly previously limited to the Super 7 cloud service providers, but Intel says that for Xeon Scalable, it shipped 500,000 units to about 30 customers under the early ship program for Xeon Scalable. Later in the question-and-answer session, Krzanich indicated that Intel expected to see a "large ramp" of these Xeon Scalable parts in the second half of 2017 and that this ramp-up would "continue on into 2018 as well." 2018 should be even bigger for Xeon ScalableAnalyst Harlan Sur wanted to know "how much of the data center growth in June was the initial production revenue shipments of Xeon Scalable." I suspect that he was interested in the answer to this as it might give investors some insight into how much opportunity remains -- given Intel's fairly substantial early ship program -- for the Xeon Scalable processors to engender both upgrades as well as an upward shift in product mix. If the proportion of Xeon Scalable shipped during the quarter were substantial, then some investors and analysts might think that Intel's data center group business might see any benefit from the new product ramp cut a bit short relative to typical new product ramps. On the flip side, if the percentage isn't that large, then investors could still believe that the Xeon Scalable upgrade cycle has legs. Krzanich declined to give a hard percentage in response to Sur's question, but he did say that "it's very little." "But I can genuinely tell you that it is really just the beginning of the ramp of the Xeon Scalable," he said, seemingly understanding the heart of Sur's question. "And, so, its impact into Q2 was minimal at best." The executive went on to indicate that the percentage of Xeon Scalable as a percentage of Intel's overall Xeon processor shipments will continue to grow during the second half of 2017, with the "big volume" happening in 2018. "So that's when it really takes over from the way the data center [business] looks from a revenue and profit standpoint," Krzanich explained. 10 stocks we like better than Intel When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Intel wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of July 6, 2017 On microprocessor giant Intel's (NASDAQ:INTC) July 27 earnings conference call, management provided some insight into when the company plans to release the first chips built using its 10nm manufacturing technology and what the ramp-up of such products could look like. Intel CEO Brian Krzanich told investors the company intends to launch initial products on 10nm that are "simpler SKUs [stock-keeping units] at the beginning." Then, "toward the middle and back half of the year," the company plans to launch "high-performance, high-complexity SKUs." Although I might be reading too much into this, I think these comments strongly suggest that Intel plans to launch products based on its second-generation 10nm architecture, known as Ice Lake, in the second half of 2018. Here's why. Do "complex SKUs" of Cannon Lake even exist?Intel's first-generation 10nm architecture is known as Cannon Lake. The Cannon Lake parts are expected to come in only low-power variants for thin-and-light notebooks and convertible notebooks. Both of those low-power variants are expected to be what Intel refers to internally as 2+2 configurations -- that is, they'll have two processor cores and GT2 graphics. The first number is the number of cores, and the second is the number following the GT, or "graphics tier." The higher end of Intel's product stack is expected to be served by Intel's Kaby Lake Refresh and Coffee Lake processors. Kaby Lake Refresh is expected to come in a 4+2 configuration, while Coffee Lake is expected to come in 4+3e and 6+2 configurations for high-performance notebooks. The "e" indicates the presence of on-package eDRAM, enhanced dynamic random access memory, which is used to speed up graphics tasks. Intel is not expected to build Cannon Lake-based products that will directly replace the Kaby Lake-Refresh or Coffee Lake parts. Instead, they are expected to co-exist, with the Kaby Lake Refresh and Coffee Lake parts handling the higher-performance and higher-power segments of the personal-computer market, with Cannon Lake-Y and Cannon Lake-U handling the lower-power, lower performance parts of the market. So, if Intel is planning to release "high-performance, high-complexity" products built on 10nm in the second half of 2018, then I see one of two possibilities:
I don't think we can completely rule the first possibility out, but I think the second, based on Krzanich's statements and the increasingly challenging competitive environment is more likely. Krzanich did say that Intel continue to see "intense competition across [its] businesses." If Intel doesn't release Ice Lake-based products for the high-performance notebook and mainstream desktop markets in the second half of 2018, the company will have to make d0 with its upcoming Coffee Lake-S for mainstream desktops, Coffee Lake-H for high-performance notebooks, and Coffee Lake-U for high-performance but lower-power notebooks until 2019. That would be, from a competitive perspective, less than ideal. Has Intel done this before?There is a precedent for the plan that I've described -- it's exactly what the company did in 2015. Intel's first 14nm processor architecture, known as Broadwell, came out very late because of issues with the then-new 14nm manufacturing technology. Since Intel didn't want the Broadwell delay to have a cascading effect on the company's product pipeline, it launched the Broadwell-U and Y parts for the notebook market -- and, surprisingly enough, even some Broadwell-H parts for the high-performance portion of the notebook market -- during the first half of 2015. Then, in the second half of 2015, Intel launched its sixth-generation Core architecture, known as Skylake, across all its different segments, including Skylake-Y for fanless notebooks and convertible devices, Skylake-U for mainstream notebooks, Skylake-S for desktop personal computers, and Skylake-H for high-performance notebooks. Intel might be planning something similar in regard to the Cannon Lake/Ice Lake transition. If Intel pulls it off, then it'll help to undo some of the damage the struggles with the 10nm technology did to Intel's product pipeline. And for what it's worth, I'd be highly impressed with Intel. Read More Intel Corporation Hints at Ice Lake Launch in Mid- to Late 2018 : http://ift.tt/2eZSN4eOn microprocessor giant Intel's (NASDAQ: INTC) July 27 earnings conference call, management provided some insight into when the company plans to release the first chips built using its 10nm manufacturing technology and what the ramp-up of such products could look like. Intel CEO Brian Krzanich told investors the company intends to launch initial products on 10nm that are "simpler SKUs [stock-keeping units] at the beginning." Then, "toward the middle and back half of the year," the company plans to launch "high-performance, high-complexity SKUs." Although I might be reading too much into this, I think these comments strongly suggest that Intel plans to launch products based on its second-generation 10nm architecture, known as Ice Lake, in the second half of 2018. Here's why. Do "complex SKUs" of Cannon Lake even exist?Intel's first-generation 10nm architecture is known as Cannon Lake. The Cannon Lake parts are expected to come in only low-power variants for thin-and-light notebooks and convertible notebooks. Both of those low-power variants are expected to be what Intel refers to internally as 2+2 configurations -- that is, they'll have two processor cores and GT2 graphics. The first number is the number of cores, and the second is the number following the GT, or "graphics tier." The higher end of Intel's product stack is expected to be served by Intel's Kaby Lake Refresh and Coffee Lake processors. Kaby Lake Refresh is expected to come in a 4+2 configuration, while Coffee Lake is expected to come in 4+3e and 6+2 configurations for high-performance notebooks. The "e" indicates the presence of on-package eDRAM, enhanced dynamic random access memory, which is used to speed up graphics tasks. Intel is not expected to build Cannon Lake-based products that will directly replace the Kaby Lake-Refresh or Coffee Lake parts. Instead, they are expected to co-exist, with the Kaby Lake Refresh and Coffee Lake parts handling the higher-performance and higher-power segments of the personal-computer market, with Cannon Lake-Y and Cannon Lake-U handling the lower-power, lower performance parts of the market. So, if Intel is planning to release "high-performance, high-complexity" products built on 10nm in the second half of 2018, then I see one of two possibilities:
I don't think we can completely rule the first possibility out, but I think the second, based on Krzanich's statements and the increasingly challenging competitive environment is more likely. Krzanich did say that Intel continue to see "intense competition across [its] businesses." If Intel doesn't release Ice Lake-based products for the high-performance notebook and mainstream desktop markets in the second half of 2018, the company will have to make d0 with its upcoming Coffee Lake-S for mainstream desktops, Coffee Lake-H for high-performance notebooks, and Coffee Lake-U for high-performance but lower-power notebooks until 2019. Has Intel done this before?There is a precedent for the plan that I've described -- it's exactly what the company did in 2015. Intel's first 14nm processor architecture, known as Broadwell, came out very late because of issues with the then-new 14nm manufacturing technology. Since Intel didn't want the Broadwell delay to have a cascading effect on the company's product pipeline, it launched the Broadwell-U and Y parts for the notebook market -- and, surprisingly enough, even some Broadwell-H parts for the high-performance portion of the notebook market -- during the first half of 2015. Then, in the second half of 2015, Intel launched its sixth-generation Core architecture, known as Skylake, across all its different segments, including Skylake-Y for fanless notebooks and convertible devices, Skylake-U for mainstream notebooks, Skylake-S for desktop personal computers, and Skylake-H for high-performance notebooks. Intel might be planning something similar in regard to the Cannon Lake/Ice Lake transition. If Intel pulls it off, then it'll help to undo some of the damage the struggles with the 10nm technology did to Intel's product pipeline. And for what it's worth, I'd be highly impressed with Intel. 10 stocks we like better than Intel When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Intel wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of July 6, 2017 Samsung Electronics Co., the South Korean technology company best known for its smartphones and televisions, has taken the title of world's largest chip maker by revenue, knocking Intel Corp. from a perch it held for nearly a quarter-century. Samsung's semiconductor unit, whose fortunes come largely from selling memory chips used in mobile devices, delivered second-quarter sales of $15.7 billion and operating profit of $7.1 billion. Intel, which dominates the calculating engines known as microprocessors, reported quarterly revenue of $14.8 billion and operating profit of $3.8 billion. It marks the first quarter in which Samsung, for years a distant No. 2 to Intel in the roughly $365 billion semiconductor industry, has topped the Santa Clara, Calif.-based chip pioneer in semiconductor sales, according to IC Insights Inc., a semiconductor-market researcher. It is an advantage industry analysts expect Samsung to maintain at least through the end of this year as a shortage of memory chips persists. Samsung, which started making chips for wristwatches in the 1970s, has more recently become a dominant player in two major types of memory chips: one for data storage, known as NAND, and another, known as DRAM, which gives devices their multitasking speed by holding data needed in the short term. A surge in demand for memory has caused prices to soar over the past year, benefiting Samsung. NAND prices rose 50% and DRAM prices jumped 115% on the spot market over the past year, according to DRAMeXchange, which tracks sales and prices. But some predict supply will become replenished by next year, dragging on Samsung's revenue. Samsung has ascended during a turbulent year for the South Korean giant, whose de facto leader, Lee Jae-yong, was arrested in February and is on trial on corruption allegations that he denies. 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 Tobey Gonnerman, executive vice president at Fusion Worldwide, an electronic-components distributor. "Technology won't take a leap backwards or become less mobile, so this won't be an anomaly for them." Samsung's leap ahead of Intel in semiconductor sales also reflects a fundamental difference in the two companies. Samsung's chip unit focuses on memory chips, traditionally a lower-margin commodity product with volatile price swings. But Samsung has invested tens of billions of dollars to place itself at the forefront of new advances that cram more memory, either storage or multitasking ability, onto small-size chips. Analysts agree it is several years ahead of rivals, particularly in terms of its large-scale production ability as an explosion in internet-connected devices brings unprecedented levels of demand. Intel, on the other hand, 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. Those products have brought high margins, but revenue growth has been increasingly hard to come by. Demand for PCs has slowed in recent years as consumers move from PCs to smartphones, and data-center customers have found ways to make fewer chips do more work, even as large cloud providers are spending tens of billions annually to expand their facilities. "Samsung surpassing Intel as No. 1 has more to do with Samsung gaining market share than Intel losing," said Bill McClean, president of IC Insights, underscoring the industry's overall strength. A year ago, Intel's full-year semiconductor sales were nearly 25% higher than Samsung's. Samsung Electronics shares have risen about 55% over the past year, while Intel's stock price has remained flat. The world's largest smartphone maker, Samsung is also in position to top Apple Inc. in quarterly profits during what is traditionally a weaker three-month period for the iPhone maker. Apple reports earnings on Tuesday. A Samsung spokesman declined to comment. An Intel spokeswoman emphasized the company's strong second-quarter performance and expressed confidence in its product road map, saying, "We feel very good about our strategy and our results." Intel is making moves to push outside its core strengths and into higher-growth areas, including NAND memory, where it is investing heavily to compete with Samsung and others. It has high hopes for a proprietary technology called 3-D XPoint that it touts as a new memory category combining attributes of NAND and DRAM at a price midway between them. The two companies also compete in mobile chips, where Intel missed the smartphone boom but last year scored a place in roughly 50% of Apple iPhone 7 units. To capture growth as cars evolve into rolling data centers, Intel is in the process of buying computer-aided driving pioneer Mobileye NV for $15.3 billion. A 16 gigabyte NAND chip that typically would go into a smartphone costs about $4, according to Jim Handy, a memory-chip analyst with Objective Analysis. Common half-gigabyte DRAM chips cost around $2.75, he said. In contrast, Intel's latest PC chips range in price from roughly $250 to $2,000, while its new line of server chips tops out at $10,000. Intel has kept revenue growing in declining markets partly by nudging customers toward ever more capable--and higher-priced--models, but profit margins have been squeezed by the high cost of manufacturing ever more advanced processor chips. Samsung's advantage may be fleeting as other memory-chip manufacturers jump in, bringing an oversupply that causes prices to fall. "I wouldn't be surprised if, when the next turn happens, Samsung's revenue plummets below Intel's, possibly for a very long time," said Mr. Handy, who predicts oversupply by the middle of next year. Write to Timothy W. Martin at [email protected] and Ted Greenwald at [email protected]
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