Apple Bounds To Top Semiconductor Buyer

Apple iPad 2 3G Teardown

Popularity of iPhone and iPad devices has driven Apple to become the largest buyer of semiconductors among all original equipment manufacturers (OEMs) for the first time, according to a report by IHS iSuppli.

In 2010, Apple bought $17.5 billion worth of semiconductors, a staggering 79.6% increase from $9.7 billion in 2009. This was unsurprisingly the highest rate of increase among the world's top 10 OEM semiconductor buyers, allowing Apple to rise up two positions to take the No. 1 rank in 2010.

Worldwide semiconductor revenue reached $299.4 billion in 2010, an increase of $70.7 billion, or 30.9% from 2009, according to a report by Gartner. The rise in revenue was due to a sudden increase in demand as the semiconductor industry was forced to ramp up production.

Apple's semiconductor spending is largely in NAND flash, which is used in iPods, iPhones, and iPads, as well as other tablets and phones, for computing and storage needs. Apple was also the world's top purchaser of NAND flash in 2010.

"Apple spent $4.7 billion last year on NAND flash and will spend an estimated $6.4 billion on NAND flash this year," said Wenlie Ye, an IHS iSuppli analyst, in an interview. "With $6.4 billion NAND flash purchased out of about 187 companies in the world that purchase it, Apple accounts for about 30 to 35% of all NAND flash memory consumption."

HP was the second leading buyer of semiconductors in the world at just under $15 billion, while Samsung was third at around $14 billion. They were followed by Dell, Nokia, Sony, Cisco, Panasonic, LG Electronics, and Toshiba.

Apple's strength derives from its product ecosystem that synergistically connects its different devices through its iTunes and iOS. Because of this, users of the Apple ecosystem find increasing value from each additional Apple device they buy and have little interest in leaving the Apple realm, Ye said. This gives the company a distinct advantage over Apple rivals HP and Dell.

"Apple's surge to the top as the world's largest OEM semiconductor buyer further confirms the connected devices evolution, where formerly independent hardware devices, such as TVs, PCs, and handsets, are now needed to be linked together to a common ecosystem to be highly successful," Ye said. "Apple is currently leading this evolution, but competition is heating up on the horizon with many different OEMs looking to build their respective device and media ecosystems."

Plus, the iPad remains the top selling tablet, with more than 20 million sold since it was launched in April, 2010. However, sales of tablets declined by about 10% since early March of this year, although the iPad held the top spot, according to J.P. Morgan. The recent Android 3.0 "Honeycomb"-based Motorola Xoom tablet has had disappointing sales, as have the Samsung Galaxy Tab, Asustek Eee Pad Transformer, and RIM PlayBook, according to J.P. Morgan.

The global NAND flash memory market is expected to grow 18% this year to reach $22.0 billion in revenue, according to IHS iSuppli. Last year, the NAND flash market revenue climbed 38% to reach $18.7 billion, which was primarily caused by the success of the iPad, HIS iSuppli said.

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