Companies that make the tiny components in your smartphone face trying times

Semiconductor companies that produce the tiny components that go into smartphones are set for challenging times because of slowing worldwide handset sales, analysts said.

As a result, firms in the sector are under pressure to merge or risk going under financially.

“The impact of slowing smartphone sales growth on the semiconductor industry will be felt hardest by back-end companies,” international agency Fitch Ratings said. “Revenue and profit in the segment could fall by double-digit percentages in 2016 due to lower capacity utilisation and the largely fixed-cost nature of the business.”

Smartphone shipments worldwide flatlined in the first quarter this year. Shipments were up by a mere 0.18 per cent to 334.9 million handsets. It was the smallest year-on-year growth on record, according to the International Data Corporation (IDC), a firm owned by media, events and research company International Data Group.

“The minimal growth this quarter is primarily attributed to strong smartphone saturation in developed markets, as well as a year-over-year decline from both Apple and Samsung, the two market leaders,” IDC said in a report.

Falling sales and slower demand for smartphones means that suppliers producing, assembling and testing microchips and other components have received fewer orders from manufacturers.