Samsung Steals Intel's Spot As World's Biggest Chipmaker
Toshiba memory chips. The memory business is driving Samsung's record profits. (Photo credit: Tomohiro Ohsumi/Bloomberg)
On Thursday afternoon, Intel satisfied Wall Street with second-quarter earnings that beat estimates. But that didn't stop Samsung from stealing the Santa Clara, California-based chipmaker's spot as the world's biggest chipmaker -- a position Intel has enjoyed for more than two decades.
Samsung reported its quarterly earnings earlier this week that showed its chip business hit $15.8 billion in revenue, with an operating income of $7.2 billion. The profitable boom in Samsung's chip unit was mostly due to its memory chip business. Memory chips are suffering from global supply constraints, which is driving up prices. These chips are going into everything from phones, PCs and data centers to Internet of Things devices.
Meanwhile, Intel reported revenue for the most recent quarter of $14.8 billion, with an operating income of $3.8 billion. Intel's memory business is indeed growing fastest, but it's almost microscopic when compared to Samsung's: $874 million, up 58% year-over-year.
What’s important to keep in mind, however, is that memory has always been a very cyclical business, said Bernstein Research analyst Stacy Rasgon. While prices are high now during a period of limited supply, prices will inevitably tumble as more manufacturing capacity is brought online in response. “Memory is on fire and the getting is good right now, but what happens next year?" Rasgon said.
Intel is currently burning through cash ramping up manufacturing for new memory chips. Samsung is also continuing to invest in memory chips, saying recently it would invest $18.6 billion to increase manufacturing capacity in South Korea. But everybody is ramping at what might be the peak of the memory business cycle, Rasgon said. And because memory is such a big business for Samsung, any potential future downturn will hit Samsung hardest.
Nevertheless, Intel's return to the memory business is an interesting turn of events considering that's where Intel first started in 1970. In the 1980s, increased competition from Japan started making life very difficult for Intel. In response, Intel successfully made the move to the more profitable business of microprocessors before the PC industry started booming. Intel became the largest chipmaker in 1992 and began its rule over the PC industry for the next few decades. But as the PC market has matured in recent years, Intel has come to rely increasingly on its data center business, where it enjoys market share of well over 90%. The data center business continues to grow with $4.4 billion in second-quarter revenue, up 9% year-over-year, but faces pressure from a resurgent AMD and intense competition in the fast-growing artificial intelligence market where graphics chipmaker Nvidia currently dominates.
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