TrendForce Expects Fabless IC Industry to Continue Struggling in 2016 with Revenue Projected to Drop 4.1% Year on Year

Slowdown in the end market has made 2015 a difficult year for the fabless IC industry. According to global market research firm TrendForce, revenue generated by fabless IC industry worldwide for the entire 2015 is estimated around US$80.52 billion, down 8.5% year on year. 

Ariel Chen, TrendForce semiconductor analyst, expects that growth in end market demand will be limited in 2016. Emerging applications such as the Internet of Things will still be nascent in development and their contribution to the industry’s revenue will also be relatively small. Hence, fabless IC industry will continue to experience falling revenue next year, with the annual decline projected at 4.1%.

The following is a summary of key trends that will be shaping the IC design industry in 2016:

Price decline in the processor chip market will continue as Chinese IC design houses escalate the competition

The processor chip market has witnessed fierce competition this year. Major Chinese IC design company Spreadtrum in particular has been able to undercut the competition and expand its share in the low-end market because it has a large sum investment from Tsinghua Unigroup. In the mid-range and high-end markets, Mediatek and Qualcomm are still locked in a tense struggle. The tough competition across the processor chip market and the strong U.S. dollar this year have resulted in a 15~20% year-on-year drop in processor chips’ average price. This price downtrend will carry on into 2016 as the Chinese IC design companies are very keen to develop processor chips. 

Smartphone vendors will develop their own processor chips to help differentiate their devices from their competitors’

With today’s smartphones becoming more similar to one another, vendors are searching for ways to distinguish their products, such as featuring in-house processors. Leading smartphone brand Samsung equipped Galaxy S6 and S6 Edge phones with its own Exynos 7420 processor. HiSilicon, an IC design subsidiary of major Chinese vendor Huawei, has also recently revealed its high-end Kirin 950 chipset, which will be produced by Taiwanese foundry giant TSMC. LG, too, is working on the second generation of its smartphone processor known as NUCLUN 2, which the vendor plans to use for its next flagship product in 2016.

Another well-known smartphone brand that may be developing its own processor is Xiaomi. Earlier this year, the China-based vendor announced that it will collaborate with compatriot IC design house Leadcore in various areas, which may include smartphone chipsets. “As new entrants to the application processor market, smartphone vendors will not pose a threat to dedicated chipset makers in the short term because of the initial cost and technology hurdles,” said Chen. “Nonetheless, smartphone vendors could become a challenge to fabless IC companies in the long-run as they continue with their pursuit for in-house components.”

Industry will continue to witness consolidation efforts that help major players succeed in areas of high growth potential

A massive wave of consolidation has swept through the IC design sector this year, resulting in several landmark deals. Major IC design firm Avago acquired Broadcom in May as a part of its strategy to expand into the telecom and cloud computing markets. In the same month, Chinese technology conglomerate Tsinghua Unigroup purchased a 51% stake in H3C, a local subsidiary of HP that specializes in networking equipment. Tsinghua Unigroup later in September also bought a 15% stake in U.S.-based data storage company Western Digital. These activities reflect Tsinghua Unigroup’s intention to develop the data center market. Chen added that more mergers and acquisitions will be coming in 2016, and the targets of these deals will be related to areas of high growth potential such as automotive electronics, the Internet of Things and data centers.