Integration sends PC component market into tail-spin

A year ago Posted 17 July 1998 -- a year ago The market for traditional PC components like microprocessors, graphics accelerators, system logic and sound chips peaked in 1997 and is now in decline, according to Rearchitecting the PC, a new report from Mercury Research. The shrinking market is due largely to the shift to lower-cost PCs, which is eroding component prices. This year, component suppliers will ship $21.7 billion worth of processors, graphics controllers, chip sets and sound chips to PC suppliers – a four per cent drop on last years figures. Mike Feibus, an analyst at Mercury commented: 'With the high end of the PC market shrivelling, chip makers can no longer profit by designing high-performance parts and riding them down the price curve.' The downward trend is spurring investment in a new class of more cost-effective, highly integrated PC components. This market will grow to $1.6 billion by 2000, according to the report. However, this new revenue source will not be enough to reverse the decline in the market for traditional PC chips. A shakeout is inevitable, say Mercury’s researchers. Mark Davison, business product manager at Datrontech, the UK components distie, agreed that the market is going to get tougher. "The drive for greater functionality with little change is cost means that the profit left in a chip is very low. Distributors are relying on volume sales to make money," he said. ®