(Yicai Global) June 1 -- US semiconductor giant Texas Instruments trimmed prices across the board in China last month, and this will have a big impact on those Chinese competitors who survive by targeting the low end of the market, an insider in the integrated circuit sector told Yicai Global.

“Those chip firms whose existence depends on having the edge on pricing will indeed be affected by Texas Instruments’ price cuts,” an industry insider told Yicai Global. But only those companies that make the same type of products as the ones that Texas Instruments has reduced the prices on will feel the strain. In order to judge the exact impact, firms' needs to check if these products account for a large part of their revenue, he added.

"Some companies, like us, will not be affected as our products are different to those made by Texas Instruments," a semiconductor firm told Yicai Global. For example, the Dallas-based company no longer makes driver chips for light-emitting-diode illumination and so its price cuts do not affect Chinese companies that make these products.

Chip demand should bounce back in the third quarter, the insider said. But the extent of the impact of the price cuts needs to be constantly monitored, he added.

China’s semiconductor sector has been on a downward trend since last year due to fluctuations in the global economy as well as other factors. Many chipmakers are feeling the strain, with 10 out of the 31 IC designers listed on the mainland losing money.

So when rumors broke last month that Texas Instruments would be lowering its prices, this raised concerns in the market.

And the IC sector on mainland bourses has been on the decline since the start of the year. The Shenwan Hongyuan Securities’ Analog IC Design Index hit a record low of 2,929.75 points yesterday, and has sunk 17.7 percent so far this year.

It could be that Texas Instruments is reducing its prices due to its own poor performance and huge inventory.

The company’s net profit plunged 22.4 percent in the first quarter from the same period last year to USD1.7 billion, according to its latest earnings report. Revenue slumped 10.7 percent to USD4.4 billion. This is the second quarter running that profit and revenue have tumbled year on year.

And the firm’s inventory is on the rise, with the value of goods in stock jumping 17 percent from the end of last year to USD3.3 billion. The days of inventory in hand have risen 45 days from the previous quarter to 179 days.

Editors：Shi Yi, Kim Taylor