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While there is a relatively close relationship between the annual market growth of fabless IC suppliers and foundries, there is often a significant difference in the sales growth rates of fabless IC companies and IDM (integrated device manufacturer) IC suppliers (Figure 1). Typically, fabless IC suppliers have better sales growth rates than IDMs.
In fact, the first time on record that IDM IC sales growth exceeded fabless IC company sales growth was in 2010, when IDM IC sales grew 35% while fabless IC company sales grew 29%.
figure 1
The gap between fabless IC supplier growth and IDM IC supplier growth has been particularly stark over the past three years. In 2019, IDM IC sales plunged 20%, driven by the memory market crash. In contrast, fabless IC supplier sales fell only 1%. In 2020, fabless IC company sales grew 22%, while IDM sales grew just 9%. Last year, fabless IC company sales soared 36%, while IDM sales grew 21%.
Interestingly, if Intel had been excluded from the IDM listing in 2020 and 2021, total IDM supplier IC sales would have grown 29% last year, 8 percentage points higher than when the company was included.
Furthermore, if HiSilicon (whose sales plunged 81% last year) is excluded from the fabless company data for 2020 and 2021, the total IC sales growth of fabless companies last year would have reached an astonishing 44%!
From 2011 to 2021, fabless/system IC company sales increased 2.7-fold ($66.4 billion to $177.7 billion), while total IDM IC sales increased 63% during the same period, from $203.9 billion in 2011 to $332.8 billion in 2021. The annual growth rates favorably reflect the disparity among fabless/system IC suppliers, so it is not surprising that fabless/system IC companies increased their share of the total IC market (Figure 2) except for 2010, 2015, 2017, and 2018. ).
figure 2
In 2003, sales of fabless/system IC companies accounted for only 14% of the total IC market. As the memory market, a market in which fabless companies have a small presence, surged in 2017 and 2018, the fabless share of the total IC market shrank in both years. However, as the memory market softened significantly in 2019, this situation reversed, with the fabless share of the total IC market jumping 4.1 percentage points to 29.9% that year.
With fabless IC revenue surging 36% in 2021, fabless companies’ share of global IC sales hit an all-time high of 34.8% in 2021. In the long term, IC Insights believes that fabless/system IC suppliers and the IC foundries that serve them will continue to be a powerful force in the overall IC industry landscape, with their share of the total IC market expected to reach a 30-year high within the next five years.
The top 10 global fabless companies
In 2021, the surge in downstream demand, the IC industry with insufficient supply, and the soaring chip foundry prices, this series of factors are like a dam storing water, which has pushed chip prices higher and higher, while also bringing unprecedented bumper harvests to chip design companies.
Recently, TrendForce research shows that the revenue of the world's top ten IC design companies in 2021 reached US$127.4 billion, a year-on-year increase of 48%. In addition to the substantial increase in revenue, there have been slight changes in the top ten companies this year. Among them, Qualcomm continues to sit firmly in the first place in the world; Nvidia surpasses Broadcom to rank second; Novatek and Realtek rise in the rankings; Himax Technologies replaces Dialog and ranks tenth.
Image source: TrendForce
Obviously, compared with the past, the above changes are only a small part of it. This time, let us count the changes and constants in the chip design industry in 2021.
The top five faults
It has to be said that the top five chip design companies in the world seem to have become a stable trend. From the data since 2017 alone, it can be seen that although the ranking has changed slightly, in general, the top five are all occupied by Qualcomm, Broadcom, Nvidia, MediaTek, and AMD, and there is a huge gap between them and the sixth place in terms of both revenue and market value.
Qualcomm
After surpassing Broadcom to become the world's number one in 2020, Qualcomm continued to sit firmly on the throne of leadership in 2021, and achieved a revenue growth of up to 51%, driven by an annual increase of 51% in mobile phone chip sales, a 63% annual increase in IoT chip sales, and the diversified development of RF and automotive chip businesses.
Among them, the continued strong demand for mobile phone chips is the undisputed main force behind Qualcomm's substantial revenue growth. In the first quarter financial report of fiscal year 2022 released recently, Qualcomm stated that the revenue growth in the quarter was mainly driven by a 42% increase in mobile phone chip revenue, especially the Snapdragon chipset business, which is a core component of Android phones, with a year-on-year growth rate of more than 60%.
With the expansion of the intelligent connected edge and the rise of the metaverse, Qualcomm has ushered in new opportunities for its development. As a leading company in the mobile field, Qualcomm's current priority is to diversify the chip sales market. At the investor conference held in November last year, Qualcomm stated that its potential market will expand more than 7 times in the next decade to about US$700 billion.
Nvidia
Nvidia can be said to be a star company in 2021. Under the trend of the Metaverse, its market value exceeded $700 billion for the first time in November last year, and just last Friday, its market value exceeded $700 billion again, and its revenue ranking successfully climbed to second place. Nvidia CEO Huang Renxun once revealed after the GTC 2022 conference that Nvidia's chip and related software product lines will have a potential market of $1 trillion.
In fiscal year 2022, Nvidia's revenue hit a record of $26.91 billion, up 61% from $16.68 billion in the previous fiscal year. The gaming, data center, and professional visualization businesses all hit new highs. Among them, the gaming industry revenue reached $12.46 billion, up 61%; the data center revenue reached $10.61 billion, up 58% year-on-year; and the professional vision revenue reached $2.11 billion, up 100% year-on-year.
The gaming business and data center business are its core businesses, accounting for more than 80% in total. Specifically, the growth of the gaming business mainly comes from the demand for discrete graphics cards and mining in the PC field. In addition to mobile phones, global PC demand is also skyrocketing. In addition, NVIDIA has basically monopolized the PC discrete graphics market on the market, and revenue has naturally risen. In addition, due to the universal characteristics of GPUs, some GPU products are used for mining. The growth of data centers is affected by the capital expenditures of cloud vendors. Under the epidemic, the investment of core cloud vendors still maintains a high growth of more than 30%, and NVIDIA's higher growth rate mainly comes from the acquisition of Mellanox and endogenous growth.
Amid strong demand for chips, Huang Renxun even expressed in an interview recently that he was interested in having Intel manufacture chips for him. However, discussions on foundry contracts would take a long time because it involves integrating the supply chain.
Broadcom
After being surpassed by Qualcomm in 2020 and Nvidia in 2021, Broadcom has dropped from the world's first to the world's third. Thanks to the stable sales performance of network chips, broadband communication chips, and storage and bridge chip businesses, Broadcom's revenue grew by 18% year-on-year in 2021, the lowest growth among the top ten chip companies.
Regarding the growth rate, Hock Tan, president and CEO of Broadcom, said that it was due to the deliberate suppression of profits in order to avoid future losses. Chief Financial Officer Kirsten Spears pointed out that the company achieved a "record" profit margin this fiscal year. In fiscal 2021, the adjusted EBITDA margin reached a record 60%, generating $13.3 billion in free cash flow, accounting for 49% of revenue.
MediaTek
Unlike the top three design companies, MediaTek has been firmly in fourth place. However, as a mobile phone SoC chip manufacturer like Qualcomm, the surge in mobile phone demand has naturally brought opportunities to MediaTek. Benefiting from the increase in 5G penetration, MediaTek's mobile phone product portfolio sales increased by 93%, and its revenue increased by 61% year-on-year.
In 2021, MediaTek also became the king of smartphone chips in China. According to the latest data from market research firm CINNO Research, the terminal sales volume of China's smartphone chip market in 2021 was 314 million units, a year-on-year increase of 3%. From the ranking point of view, MediaTek and Qualcomm are almost evenly matched in the Chinese mobile phone chip market. MediaTek ranked first in the 2021 Chinese mobile phone chip market with 110 million units.
Image source: CINNO Research
Unlike Qualcomm, which covers the mid-to-high-end field, MediaTek has swept almost all mobile phone manufacturers including OPPO, vivo, Xiaomi and Honor in the mid-to-low-end mobile phone market. The Dimensity chip mobile platform has a global smartphone market share of 40% in 2021, ranking first in the world. MediaTek officials said that MediaTek is also the first in China's 4G and 5G smartphone market share. Two out of every five mobile phones in the world are equipped with MediaTek Dimensity chips.
Image source: MediaTek
Super Power
In 2021, the booming gaming market led to booming sales of Ryzen CPUs and Radeon GPUs. AMD's revenue from central processing units and graphics processors increased by 45% year-on-year. Coupled with the accelerated demand from cloud enterprises, revenue from the enterprise, embedded and semi-customized departments increased by 113% year-on-year, bringing AMD's total revenue to a year-on-year increase of 68%.
According to AMD's latest financial report, its revenue for fiscal year 2022 is expected to reach about $21.5 billion, a year-on-year increase of about 31%. In the fourth quarter, the company's gross profit margin exceeded the 50% mark for the first time. In 2021 and early 2022, AMD also completed the acquisition of Xilinx, which is also the reason for the above-mentioned gap in Xilinx's market value. However, due to the sharp increase in AMD's stock price, the original acquisition price of $35 billion finally soared to $49 billion, which is also a sky-high acquisition.
After the completion of this acquisition, AMD will become another semiconductor manufacturer after Intel that has three major product lines: CPU, GPU, and FPGA.
Display chips that came from behind
Although the reason why Himax Technologies came from behind and won the last place in the top ten IC design industries has a lot to do with the acquisition of Dialog, which was originally ranked tenth, by Renesas, it cannot be denied that the driver chip industry in 2021 is already very hot. Novatek and Himax Technologies achieved revenue growth of 79% and 74% respectively in 2021, ranking first and second.
Taking Novatek Technology, a major driver IC manufacturer, as an example, Novatek's consolidated net operating income in 2021 was NT$135.366 billion, a year-on-year increase of 69.3%, a record high. This is also the first time that Novatek's revenue has exceeded the NT$100 billion mark. At the same time, with its record-breaking operating income, Novatek's ranking has also risen from 8th in 2020 to 6th in 2021. In addition, Novatek's legal person also expects that in 2022, driven by the full-scale shipment of products such as AMOLED driver ICs and automotive integrated touch and driver ICs (TDDI), the full-year performance will have the opportunity to reach a new high.
On the one hand, affected by the epidemic, the surge in IT demand has driven the sales of notebook display ICs and displays. According to Frost & Sullivan, global display driver chip shipments increased from 12.391 billion in 2016 to 16.540 billion in 2020, with a compound annual growth rate of 7.49%. It is expected that the future upgrade of display technology and the expansion of downstream applications will drive the further growth of the display driver chip market, and shipments will increase to 23.320 billion by 2025. Among them, mainland China is the main market for driver chip manufacturers such as Novatek and Himax. According to the Himax report, in 2021, customers from mainland China accounted for as high as 81.5%. In recent years, with the continuous transfer of panel manufacturing capacity to China, the mainland has established its position as a global panel manufacturing center, and the corresponding mainland market has also become the main market for global driver chips. According to CINNO Research statistics, the domestic display driver chip market will reach US$5.7 billion in 2021, and will continue to grow to US$8 billion by 2025, with a CAGR of 9%.
Image source: CINNO Research
Obviously, the ever-expanding Chinese mainland market has become a new development opportunity.
On the other hand, although the market demand has increased significantly, the incremental capacity of 8-inch wafers in global wafer capacity investment is limited, especially in the 90~150nm process node, the capacity shortage is more obvious. The shortage of capacity has also made price increases the main driving force for the increase in the global display driver chip market size.
The Omdia report directly pointed out that although the supply situation of large-size display driver chips is expected to ease in the second half of 2021 compared with the first half of the year, due to the lack of any new 8-inch wafer production capacity, the supply of large-size display driver chips that mainly rely on 8-inch wafer production capacity will remain tight until 2022, especially in the peak demand seasons in the third and fourth quarters, and the risk of shortages is expected to remain.
There is no doubt that the surge in downstream applications and production capacity shortages continue to widen the supply-demand gap in the market, which also brings new opportunities for display chip manufacturers to overtake others.
Broadcom was surpassed
In 2021, when the revenue growth rates of peers such as Qualcomm, Nvidia, and MediaTek were soaring like rockets, Broadcom's growth rate was only 18%. Not only that, based on the above figure, Broadcom's revenue growth rate in recent years and its declining rankings, Broadcom does not seem to be as "high-spirited" as its peers in recent years.
Broadcom itself actually gave an answer to the growth rate that is almost in a stable range a long time ago. Hock Tan, president and CEO of Broadcom, has always emphasized that despite the surge in demand for its company's chips, its company is still strictly controlling orders. The implication is that it is sacrificing some current sales to avoid oversupply in the future and deliberately suppressing profits.
Since the second half of 2020, many industries around the world have been caught in a chip shortage, and the mobile phone, automobile and other industries have been even more caught in a "chip shortage". Even in 2022, the chip shortage crisis has not improved. Broadcom's move is also to be cautious in the face of potential overstocking.
However, as a supplier of key components for Apple, Broadcom is highly dependent on Apple. According to incomplete statistics, Apple's revenue accounts for 20% of Broadcom's total revenue. At the end of last year, local media in the United States reported that Apple was establishing a new engineering team in Southern California, which would focus on the development and production of wireless chips to replace components provided by Broadcom, Qualcomm and Skyworks. The news directly caused Broadcom to close down 3% that day.
Although Broadcom has not been as "vibrant" as its peers in recent years, Broadcom itself and analysts seem to be optimistic about its future. As mentioned above, Broadcom's chief financial officer Kirsten Spears directly pointed out that it achieved a "record" profit margin this fiscal year.
On the analyst side, seekingalpha analyst Stephen Simpson said that given Broadcom's growing custom ASIC business and opportunities in the field of photonics, it is expected to see strong order interest in 2023. In his view, whether it is Broadcom's network, broadband/connectivity business, or storage and wireless business, they will have a good future as 5G penetration continues to grow. However, he also emphasized that Broadcom will not be a growth leader in the chip field, and because its management has stated that it will not look for other foundry partners outside of TSMC, Broadcom also faces continued supply challenges and risks.
Currently, 2022 is about to usher in the second quarter, but under the influence of various factors such as the epidemic and earthquakes, the chip shortage situation does not seem to have been greatly alleviated. The price increases and extended delivery cycles on the downstream application side continue. Coupled with the increase in demand for automobiles, 5G, high-performance transportation, automobiles, and industrial applications, in 2022, the overall revenue of IC design companies may still usher in new growth.
But at the same time, they will also face the impact of various uncertainties such as the increase in wafer foundry costs, shortages of materials and equipment, and the ever-changing international situation on the terminal market. The terminal market has absolute say over the upstream industry. If the weak situation continues, it will inevitably affect the entire industry chain, and this is also a test they must face.
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