(MENAFN- Gulf Times) Investors in global chipmakers have had a rocky ride in the last few months on worries about a slowing smartphone market, but a clamour for more video content from consumers is underpinning buoyant sales for memory chipmakers.
Indeed, the earnings reports of various chipmakers and smartphone companies in the past month tell a more interesting story beyond the cooling in phone shipment volumes: smartphone makers are cramming their devices with memory to satisfy the increasing demands of consumers.
A case in point is last week's quarterly report from Apple Inc.
The Cupertino, California-based company said the iPhone X was the most popular iPhone model in the March quarter — the first cycle ever where the costliest iPhone was also the most sought after.
More upbeat assessments from Samsung Electronics Co Ltd, Qualcomm Inc, and Franco-Italian company STMicroelectronics, have also eased concerns.
Samsung last month forecast strong sales for 'high-density chips that have more processing power and bigger storage capacity — demand that will help it weather a decline in overall smartphone shipments as consumers are willing to pay for costlier and faster models that allow them to easily watch and store large amounts of video.
'Even as the number of smartphone shipments slow down, each smartphone will contain memory chips with bigger capacity and better performance, which, for memory chipmakers, makes up for a slowdown in the number of total smartphones, said Kim Rok-ho, an analyst at Hana Financial Investment.
That puts into perspective a warning by Taiwan Semiconductor Manufacturing Co Ltd (TSMC) of softer smartphone sales, which was partly responsible for the recent selloff in Apple and other chipmakers.
The broader concerns about a slowdown in the chip market appear to have eased as well.
The Philadelphia Semiconductor Index, a proxy for global chipmakers that fell sharply from its peak in mid-March on initial iPhone sales concerns, has stabilised in the past two weeks, posting a 4.4% rise so far this year.
The $122bn memory chip industry enjoyed an unprecedented boom since mid-2016, expanding nearly 70% in 2017 alone, thanks to robust growth of smartphones and cloud services that require more powerful chips that can store loads of data.
The pace of growth is set to more than halve as memory-chip prices come off their highs, but the outlook remains strong for pure-play memory chipmakers such as Micron Technology Inc and SK Hynix.
Micron's shares have risen 18% this year and Hynix's stock has gained 8.5%.
Revenue at Micron, for instance, has grown at an average rate of about 65% in the two quarters it has reported this year, and analysts expect it to grow at an average of 30% for the rest of the year.
Micron and Hynix both trade at roughly 4 times forward 12-month earnings against a sector median of 16.7, suggesting that the stocks have room to grow.
Other chipmakers like Advanced Micro Devices Inc and Texas Instruments, which are less leveraged to the smartphone market, including those that sell to carmakers, industrial, bitcoin, and gaming companies are well set up too.
All the same, the slowdown in smartphone shipments is bad news for chipmakers that design microprocessors: each phone needs just one microprocessor chip versus rapid growth of memory content in devices.
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