Despite chaos in PCs, chipmakers are feeling optimistic

August 5, 2013: 9:57 AM ET

A surge in mobile devices is helping offset the decline of desktop computers.

By Peter Suciu

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FORTUNE -- While the chips were down -- or rather flat -- in 2012, the global purchasing of semiconductors could see growth in 2013 as the world's top electronic brands ramp up spending. Apple and Samsung are now contending to claim the title of biggest spender.

That is good news for chipmakers in particular. The total market for semiconductor spending by major original equipment manufacturers could rise to $265.2 billion this year, up 4.2% from $254.4 billion last year according to analytics provider IHS. More importantly spending by the end of 2013 is forecast to be at the highest level in six years.

The market recovery comes even as the PC sector continues to lag. In fact, the PC market still continues to drag down other products with it. "It is a pretty weak year for chip sales in the PC sector," says Shane Rau, research vice president for computing semiconductors at IDC. "It isn't just PCs and servers, but all the other devices such as printers and monitors. The big story is that people are still being careful about their corporate and personal purchases."

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China, which is now the world's biggest market for PC shipments, will continue to account for a significant portion of the PC-related chip spending even as the overall global computer market looks soft.

IDC is forecasting low single-digit growth to a mid-single-digit decline in this sector, however chipmakers could see growth from other areas. The greatest share of the spending will, not surprisingly, come from mobile. This is where Apple (AAPL) and Samsung currently dominate. According to IHS. wireless alone is forecast to account for 26% -- approximately $62 billion -- of the total market. Moreover wireless is also expected to be the highest growth market in 2013 with a projected expansion of 12.8%.

For chipmakers there is good news in all this. "What we are seeing is what happens now happens first in mobile and trickles down to other products," says Paul Gray, director of TV electronics research at NPD Group. "What we've seen is that things have gotten very difficult for chipmakers as industries plateaued off a bit. There has been a general shaking out as the PC and TV industries began to peter out with sales."

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Things are beginning to turn around, thanks to mobile and tablet devices. "Things are flowering again, but it means a new landscape, and for some chipmakers once you are out you stay out," Gray says. "Sooner or later the realization dawns on those chipmakers that they are so far behind in the market that there is little they can do, and they have to find other niches or look at something else. Some makers are aggressively looking at whether there is a sustainable profit in this business or quietly finding a way out of it."

While Apple and Samsung will top rankings, the roster of companies will also include Hewlett-Packard (HPQ), Lenovo, Sony (SNE), Dell (DELL), Cisco Systems (CSCO), Panasonic, Toshiba, and Asustek Computer. Some of these companies are thus also both chipmakers and chip vendors, and some of these companies are up, some down. "Dell and Sony are declining in chip spending, which is essentially flat," says Myson Robles-Bruce, senior analyst for semiconductor spend & design activity at IHS. "Lenovo will do very well as they've been able to diversify to other platforms, but HP is down by 8% this year and is struggling because of dependence on computer platforms."

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