Chipmakers Weathering Storm of Slowdown in Smartphone Sales

Global chipmaker investors have experienced a difficult time the last couple of months due to worries over a smartphone market slowdown, but an increase for video content from the consumer is underpinning strong sales for makers of memory-chips.

Earnings reports for several smartphone companies and chipmakers over the last month show a more interesting take on how things are beyond just the decline in volume of phone shipments as smartphone makers have started to cram their devices full of memory to satisfy the demands of the consumer.

In the quarterly earnings report a week ago from Apple, the company said its iPhone X was the lineup’s most popular model during the March quarter, which is the first cycle ever to have the costliest iPhone lead Apple’s lineup in popularity.

More upbeat reports from Samsung, Qualcomm, and STMicroelectronics have eased concerns as well.

In April, Samsung forecasted it would it have strong sales for its high-density chip, which contain a bigger storage capacity as well as more processing power, that will certainly help it to weather a fall in overall shipments of smartphones as the consumer will pay for faster and costlier models that allow for watching easily and store large chunks of video.

It appears the broader concerns over a slowdown for chips have eased. The proxy for worldwide chipmakers, the Philadelphia Semiconductor Index that dropped sharply from its mid-March peak on initial sales concerns for iPhones, has become more stabilized the last couple of weeks, as it has posted a rise of 4.4% thus far in 2018.

The memory chip industry that is more than $122 billion in size has enjoyed an excellent boom dating back to mid-2016, expanding by close to 70% during 2017 alone, due to strong growth in smartphones and the popular cloud services that need chips that are more powerful that are able to store large chunks of data.

The pace of chip growth will more than halve as prices of memory chips come off highs, but the outlook continues to be strong for chipmakers like Micron Technology that makes pure-play memory chips and SK Hynix. Micron’s shares are up 18% in 2018, while stock at Hynix is up over 8.5%.

Micron’s revenue has grown by an average of 65% the past two quarters it reported in 2018 and analysts are expecting it to grow at a rate of 30% for the remainder of 2018.

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