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Business

Internet of things promises sustained chip market surge

But oversupply could sink prices while demand grows

New demand promises to keep the global chip market growing over the next few years.

TOKYO -- The global semiconductor market is seen ballooning nearly 30% over two years as the need for high-speed data processing and the dawn of networked devices create massive new demand.

The market will reach $408.6 billion this year, 20.6% larger than in 2016, projects a report out Tuesday from World Semiconductor Trade Statistics. The tally, about $30 billion more than WSTS had forecast in June, would mark both the first annual total above $400 billion and the first double-digit annual growth since 2010.

In 2018, the market is seen expanding 7% on the year to $437.2 billion.

Second engine

A 0.2% dip in 2015 aside, the semiconductor market has been grown nearly continuously since 2013, thanks in large part to the spread of smartphones and growth in memory technology. The rise of video content, in particular, has stoked demand for semiconductor memory in data centers and smartphones themselves. The highest-capacity iPhone now features four times as much memory as it did three years ago. Memory chips, manufactured by such heavyweights as Samsung Electronics and Toshiba, are seen making up 30% of the overall semiconductor market in 2017. The segment itself is seen expanding 60.1% on the year.

Now new uses for memory are taking off, pushing WSTS to upgrade its forecast and sustaining market growth. So-called internet-of-things devices, used to bring everything from factory equipment to home appliances online, are eventually expected to number more than 1 trillion units. Chip demand from this technology could even exceed that from the 1.5 billion smartphones shipped each year.

Cars, meanwhile, will become "data centers on wheels" as self-driving vehicles hit the roads, said Doug Davis, head of Intel's automated-driving group, in February. Automated driving depends on processing massive amounts of data from vehicle-mounted cameras in real time -- a feat requiring both high-performance processors and around 1 terabyte of storage.

Catching up

Chipmakers are adding production capacity to meet this anticipated jump in demand. U.S. research firm IC Insights sees $90.8 billion in capital investments this year, or 35% more than in 2016.

But an industrywide surge in output could send prices falling if supply meets or exceeds demand. The optical fiber market took a similar plunge in the early 2000s as manufacturers increased production. Some also fear that Samsung could lower prices to undercut rivals.

Morgan Stanley sees oversupply possibly prevailing in 2019 and 2020 despite continued growth in flash memory demand, it told investors in a note Sunday. Samsung shares tumbled 5% on Monday in their largest single-day drop this year, and Tokyo Electron shed nearly 3% on Tuesday -- signs that investors are starting to question how long the tight semiconductor market can last.

(Nikkei)

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