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Copyright © 2011 iSuppli Corporation, a Company which was acquired by IHS Inc. All Worldwide Rights Reserved. Confidential. Patents Pending | 1700 E. Walnut Avenue El Segundo CA 90245 | Telephone: + 1.310.524.4007 | Email: [email protected]

EXECUTIVE SUMMARY | Design Activity Tool | H1 2011

Apple Overtaking HP as the Largest Semiconductor Buyer of the World

Wenlie YeAnalyst,SemiconductorSpend and DesignActivity

Report Author



Copyright © 2011 iSuppli Corporation, a

Table of ContentsFindings and Implications ..............................................................................................................1

A New King: Apple Dethrones Hewlett-Packard ..........................................................................2

Apple’s Insatiable Appetite for NAND Flash ..................................................................................3The Apple Advantage: Ecosystem Synergies at Work ..................................................................4The Rest of the Top 10 ..................................................................................................................5Connected Devices Push Wireless Above Computer ..................................................................6Additional Data ..............................................................................................................................7

FIGURESFigure 1: Apple Dethrones Hewlett-Packard as the Biggest Semiconductor Purchaser in the World .... 2Figure 2: 2010 Apple vs. HP Semiconductor Spending: Wireless is the Difference............................... 3Figure 3: Apple Accounts for a Significant Portion of our Study’s NAND Flash Purchasing .................. 3Figure 4: Apple Product Launch Timeline Corresponding to its Semiconductor Spending .................... 4Figure 5: Computer Semi Spend YoY Change Analysis: HP vs. Dell vs. Apple..................................... 5Figure 6: Top 10 Semiconductor Purchasers World Wide...................................................................... 5Figure 7: Wireless Reclaims Top Spot Over Computer Platforms.......................................................... 6Figure 8: 2010 vs 2011 Semiconductor Spending by Market ................................................................. 7Figure 9: 2011 Semiconductor Spending Growth Analysis .................................................................... 7Figure 10: Semi Spend by Device Summary 2010 vs 2011 ................................................................... 8Figure 11: Worldwide Design Spend Share by Country ......................................................................... 8

COMPANIES MENTIONEDApple Hewlett-Packard HuaweiLenovo LG Electronics NokiaPanasonic Samsung Electronics SanDiskSony Toshiba

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Findings and Implications

Apple overtakes Hewlett-Packard as the world’s No. 1 semiconductor buyer in 2010.Strong iPhone and iPad sales, which in turn resulted in high NAND Flash purchasing, contributed to Apple’s surge. Demand for smart phones and tablets is expected to continue. Apple, with its strong device and media ecosystem, is expected to benefit, as it already has, from the wireless evolution. For 2011 and 2012, Apple will further increase its lead in semiconductor spending over the next closest challenger. HP dropped to No. 2 in 2010 and will fall to No. 3 by 2012, surpassed by Samsung Electronics.

Wireless will reclaim the title as the biggest consumer of semiconductors.Wireless briefly recorded lower semiconductor spending versus computer platforms in 2010, when computer semi spending gained a heal injection from a booming DRAM market. However, with DRAM experiencing a slight decline in 2011 and 2012 and NAND heavy wireless lining up to another record year, Wireless seems to have secured the top semiconductor purchaser position and has not looked back.

NAND Flash purchasing is on the rise.IHS iSuppli expects NAND Flash to be the fasting growing semiconductor purchased in 2011 (up 21.5% YoY), largely due to high demand from consumer and wireless applications. LEDs came in second due to the high-adoption rate of LED TVs. NOR Flash lost the most ground YoY, down approximately 13% from a year ago.

The U.S. remained the dominant force in semiconductor procurement decision making,ranking first on the country design spend rankings; Japan ranks No. 2.While U.S. and Japan’s positions are forecasted to remain the same, No. 1 and No. 2 till 2012, China is expected to surpass S. Korea, finishing third on the list. In 2011 and 2012, China would have made 8.2% and 9.2%of the world’s semiconductor purchasing decisions, respectively, up from 7.9% in 2010. S. Korea’s share of the world’s semiconductor purchase decision level drops slightly from 8.2% in 2010 to 8.0% in 2011 and 2012.





A New King: Apple Dethrones Hewlett-Packard One of the most interesting findings in the study—for the first time since IHS iSuppli began its Design Spend research in semiconductors back in 2005, Hewlett Packard ($15.2B in 2010) did not finish with its usual Top Chip Purchaser Award, rather, the title went to Apple ($17.5B in 2010).

Although the change in rank is interesting in itself, Apple overtaking HP was not entirely a surprising event. Apple has climbed the ranks every year (No. 6 in 2008, No. 3 in 2009) and at this pace, would maintain the top-chip buyer position for many years to come. Hewlett-Packard, on the other hand, is having a hard time pushing past the $15B spending mark as its semiconductor spending levels are forecasted to stay flat to down in the foreseeable future.

HP’s position as the world’s No. 1 chip buyer has been threatened for years by electronics giant Samsung Electronics. In 2008, the gap between the two firms stood at approximately $300M, with HP on top. HP was still No. 1 in 2009, but the spending margin it had shrunk significantly to less than $10M, a figure that would justify Samsung and HP as co-MVPs in 2009.

As interesting as it would be to compare Apple and Samsung’s semi purchasing trends, HP presents a better case. Both Apple and Samsung have diverse product portfolios, but Samsung’s heavy-semiconductor focus (DRAM, NAND, etc.) makes Samsung a much better comparison to the likes of Toshiba and Panasonic, rather than Apple.

Apple and HP have been rivals in the computer space for many years, but the two companies are fundamentally different. A look at what markets the companies play in quickly indicate that Apple is much more of a wireless devices maker than a computer maker, spending approximately $10.7B of its total $17.5B semi budget (or 61%) in 2010 on wireless products such as iPhone and iPads. HP, in 2010, spent $12.7B of $15.2B (or 82%) on making computer products such as desktops, notebooks, and servers.

Figure 1: Apple Dethrones Hewlett-Packard as the Biggest Semiconductor Purchaser in the World

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HP’s semiconductor bill is heavily dependent on one component—DRAM. In 2010, HP spent more than $4.5B, almost 30% of its total budget, on DRAM chips. Many computer makers such as HP, Dell, and even to a certain extent Apple, are big DRAM buyers since all notebooks, desktops, and servers need DRAM. In 2010, the three combined to spend more than $10B in DRAM chips. The 187 OEMs in the IHS iSuppli study purchased a total of $27.1B in 2010, up 80% from $15.1B in 2009.

DRAM is a volatile market with few key producers controlling a large portion of supply. DRAM had a great year in 2010, recording record level ASPs and revenues. Although IHS iSuppli does not expect another jump in DRAM in the foreseeable future, any significant price hike or drop in DRAM would directly impact the semiconductor purchasing budget of a computer-heavy OEM.

Apple’s Insatiable Appetite for NAND FlashAlthough Apple consumes substantial amounts of DRAM, the firm’s appetite for NAND Flash is on another level. Almost all of Apple’s products (iPod, iPhone, iPad, etc.) consume NAND Flash and it comes as no surprise that Apple is currently ranked as the No. 1 purchaser of NAND Flash in the world (followed by SanDisk and Nokia). In 2011, IHS iSuppli anticipates Apple to spend approximately $6.4B on NAND flash, which is equivalent to 28% of the company’s total semiconductor procurement or 34% of the total NAND spending done by the 187 OEMs in the study.

Figure 2: 2010 Apple vs. HP Semiconductor Spending: Wireless is the Difference

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Figure 3: Apple Accounts for a Significant Portion of our Study’s NAND Flash Purchasing

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NAND Flash is on the rise due to its status as the de facto storage medium for consumer and wireless devices. As the demand for smart phones and tablets continues to rise, NAND suppliers are eager to meet the challenge by stepping up on capital expenditure and expanding production capabilities. NAND spending in 2011 is forecasted to grow 21.5% YoY, outperforming its memory cousin DRAM at -5.89% and the semi-spend mean of 4.9%.

The Apple Advantage: Ecosystem Synergies at WorkApple’s true hardware strengths lie in its device and media ecosystem—every Apple product is connected through iTunes/iOS and is synergetic with all the other Apple products. As a result, committed users of the Apple ecosystem derives more value from each additional Apple device and have little interest in leaving the Apple realm. In other words, through a common ecosystem, Apple leverages each device to sell other Apple devices. More devices sold lead to more semiconductor purchased.

The traditional PC business does not put heavy emphasis on the creation of an ecosystem. A buyer who once purchased a Hewlett-Packard PC would just as likely purchase a Dell PC next if the price was better, since there is little or no value in purchasing another HP.

Figure 4: Apple Product Launch Timeline Corresponding to its Semiconductor Spending

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Apple’s computer business also benefits from the Apple ecosystem. Apple is currently ranked No. 3 in computer semi purchasing behind HP and Dell. Although Apple spends significantly less than both HP and Dell on computer products, IHS iSuppli forecasts that Apple’s computer related semiconductor spending will outpace both HP and Dell in growth every year.

The Rest of the Top 10In 2010, the top 10 semiconductors buyers spent a combined $98B, representing 43% of total semiconductors purchased by the 187 OEMs studied. Of the 10 OEMs, two are wireless companies (Apple and Nokia), two are computer makers (HP and Dell), five are diversified consumer electronics producers (Samsung, Sony, Panasonic, LG, Toshiba), and one network equipment maker (Cisco).

Figure 5: Computer Semi Spend YoY Change Analysis: HP vs. Dell vs. Apple

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Figure 6: Top 10 Semiconductor Purchasers World Wide

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Samsung Electronics solidified a bronze medal in both 2010 and 2011. Being the lead provider of LED TVs, Samsung is currently the largest buyer of LEDs in the world, consuming approximately more than $500M in LEDs 2010 and is projected to spend $700M on LEDs in 2011. Samsung is also eager to participate in the connected devices field, launching the Galaxy Tab in 2010 and an updated version earlier this year. Although the tablets did not fare well with the consumers, Samsung’s has had some success in its handset business, spending approximately $1B worth of NAND Flash in 2010.

Dell’s position did not change. Strong notebook demand and recovering enterprise spending will keep Dell in the top 5 for the near future, but as the company has yet to find a way to rely less on its computer business, Dell does not look to be increasing its semiconductor spending soon.

The world’s largest handset maker by volume, Nokia, is in the middle of a significant restructuring effort. While Apple focused on pushing out the latest and greatest smart phone, Nokia on the other hand concentrated on scale and localization, with China as one of its main markets. It is interesting to note that Nokia is ranked No. 3 in Design Spend in China, lagging only behind Computer maker Lenovo and communication equipment maker Huawei Technologies.

Missing the smart phone craze slightly, Nokia’s Symbian platform wore out its welcome—it’s too old and too clunky. Nokia will now partner with Microsoft to roll out a new lineup of smart devices armed with Windows Phone 7. Much of Nokia’s success would be determined by the market’s acceptance of the Windows Phone 7 operating system. If Microsoft is able to successfully leverage the existing PC based Windows operating system, in the process create a competitive ecosystem to Apple’s iOS/iTunes or Google’s Android, look for Nokia’s semiconductor purchasing budget to significantly increase.

Connected Devices Push Wireless Above Computer Of course, how much money a firm spends on semiconductor is not by any means a direct indicator of a company’s performance. However, semiconductor purchasing trends does give away how confident an OEM is at generating profit from its hardware business. As the world’s largest computer manufacturer, HP and its drop in semiconductor spend rankings not only raises flags regarding the firm’s competitive outlook, but also questions the traditional PC business as whole. Surely, the PC is here to stay for the immediate future and there are even a few high highlights, such as the continuing reasonability high demand for notebooks. However, we believe that the traditional PC has reached or is nearing its max potential and that the future lies within the wirelessly connected device.

Figure 7: Wireless Reclaims Top Spot Over Computer Platforms

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Additional DataFigure 8: 2010 vs 2011 Semiconductor Spending by Market

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Figure 9: 2011 Semiconductor Spending Growth Analysis

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Figure 10: Semi Spend by Device Summary 2010 vs 2011

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Figure 11: Worldwide Design Spend Share by Country

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