Three trends for 2013
First, I asked Dr. Wally Rhines regarding the trends in the global semiconductor industry. He cited:
* Growth in communication ICs.
* Growth in the third dimension.
* Accelerated design activity at the leading edge.
Growth in communication ICs: On the macro level, silicon area shipments continue to grow gradually, as do semiconductor unit shipments. However, there’s a major shift in application segments from computing to communications. Communications used to be only one third the size of computing in terms of semiconductor usage.
Communications are expected to surpass computing in terms of semiconductor consumption by 2014 thanks to the rapid growth of wireless applications, the incorporation of computing into communications devices like smart phones and the addition of communications to computing devices like tablet computers.
Growth in the third dimension: Shrinking feature sizes and growing wafer diameters will continue to contribute to the annual 30 percent decrease in the average cost per transistor and average 72 percent unit growth of transistors, but they will do so at a diminished rate. Fortunately, other avenues are emerging that can help sustain the semiconductor industry’s remarkable rate of growth. One largely untapped opportunity is in the third dimension, i.e. growing vertically instead of shrinking in the XY plane.
DRAM stacks of eight or more die are already possible, although they are still more expensive on a cost per bit basis compared to unstacked devices. Complex packaged systems made up of multiple heterogeneous die, memory stacked on logic and interposers to connect the die are evolving rapidly. Layers in the IC manufacturing process continue to increase as well.
Accelerated design activity at the leading edge: Another interesting trend is the recent surge in capital spending among foundries to add capacity at the leading edge. This wave of spending will result in excess capacity, at least initially, which may force foundries to lower prices to boost demand. In fact, capacity utilization data in the last few months shows a dramatic decline in utilization at 28/32nm and 22nm nodes, suggesting that excess capacity is already happening to an extent.
While differences in 28 and 20nm processes—such as double patterning—create challenges, the existing capital equipment is largely compatible with both processes. Such a high volume of wafers and the large available capacity will lead to increasingly aggressive wafer pricing over time. As a result, cost-effective wafers from foundries will encourage totally new designs that would not have been possible at today’s wafer cost.
Industry outlook 2013
So, how is the outlook for 2013 going to shape up? Dr. Rhines said: "After almost no growth in 2012, most analysts are expecting improvement in semiconductor market growth in the coming year. Currently, the analyst forecasts for the semiconductor industry in 2013 range from 4.2 percent on the low side to 16.6 percent on the high side, with most firms coming in between 6 percent and 10 percent. The average of forecasts among the major semiconductor analyst firms is approximately 8.2 percent.
"However, most semiconductor companies are less optimistic in their published outlooks. This seems to be influenced by the level of uncertainty that exists because of unknown government actions and market conditions in the US, Europe and China."
Any more consolidations?
It would be interesting to hear Dr. Rhines' opinion on any further consolidations within the industry. He said: "It is common misperception that the semiconductor industry is consolidating. A closer look at the data shows that the semiconductor industry has been doing the opposite. It has been DE-consolidating for more than 40 years.
"Take the #1 semiconductor supplier, Intel. Intel’s market share is the same today as it was a decade ago. And, the combined market share of the top five semiconductor suppliers has been slowly declining since the 1960s. Similar trends also apply to the top ten and top 50—both are the same or lower than they were a decade, as well as decades, ago. In fact, the combined market share of the top 50 semiconductor companies has decreased 11 points in the last 12 years.
"What accounts for this? Unlike other mature industries, revenue growth in the semiconductor industry is driven by companies who aggressively pursue, and eventually dominate, a newly emerging product category. Each time a new type of product appears—memory in the 1970s, microprocessors in the 1980s, SoCs in the 1990s and wireless chips this last decade—a different company seizes the opportunity to build market share by dominating the new market.
"That’s why turnover among the “top 10” in the semiconductor industry has been high, with more than 50 percent disappearing from the top ten over the last 50 years. What’s making it even more interesting is that, in the last several years, fabless semiconductor companies have finally entered the top 10 list.
"Qualcomm is now ranked #7 for all semiconductor companies and its market capitalization recently topped that of Intel. The rise in market share is directly linked to their dominance in the relatively recently emerging communications consumer market.
"So why do most people think that the semiconductor industry is consolidating? It seems to stem from the general awareness of consolidation in semiconductor manufacturing. There is no doubt that foundries have captured a large share of silicon wafer manufacturing. However, this consolidation isn’t as profound as you might think.
"Foundry wafer revenue grew to about 20 percent of total semiconductor sales by the year 2000 and then remained flat for most of the next decade. (The 20 percent share of revenue assumes that the fabless semiconductor companies sell their foundry-produced products at about a 2X multiple of their foundry cost.) This 20 percent share has recently begun to grow again as foundries have increased their capital expenditures from 2010-2012, far beyond their historical levels, contributing to the overcapacity at emerging nodes that we discussed previously.
"While the overcapacity will drive down wafer and component prices, the growth of new applications to fill that capacity will eventually lead to growth of the total semiconductor market and foundries most certainly will benefit from that growth."
Memory market in 2013
I next inquired about the fortunes of the memory market in 2013. Dr. Rhines added: "Most semiconductor industry analysts are projecting that the memory market will rebound in 2013 along with the rest of the semiconductor industry. Because of pricing pressures, the memory producers have been much less aggressive in their capital spending than the silicon foundries.
"The fact that memory companies have added much less capacity, as a percent of existing capacity, than logic-oriented foundries have done should help to firm ASPs moving forward, which is already happening with NAND flash. So it is highly likely that, for the first time in history, there will be a semiconductor cycle where memory pricing remains stronger than SoC pricing.
"Electronic system equipment companies will have some challenges taking advantage of this situation. Historically, it has been easy for them to add value to systems by increasing memory but, to take advantage of lower SoC prices, they will need to redesign their systems. Its possible that the market pricing pressure will be delayed until the memory capital investment catches up. That could take some time!"
EDA in 2013
Next, I asked how does he see the global EDA industry doing in 2013? He added: "The average of current financial analysts’ forecasts for 2013 predicts that revenue for the big three EDA companies will approach $4.5 billion in the 2013 calendar year. If the analysts’ forecasts are to be believed and the historical relationship between big three revenue and total EDA revenue holds, that would peg 2013 top line EDA revenue at around $7 billion (including all IP and Services).
"As I mentioned earlier, one of the most interesting trends for EDA is the unusually large growth in leading-edge capacity, with substantial capacity available at the 28/32nm and 22nm nodes. This should accelerate chip and system design activity, as designers move to take advantage of new capability and compelling wafer costs. In addition, there should be a large number of redesigns of existing chips in sub-32nm technology to take advantage of the lower costs.
"Expanded design activity, aggressive yield improvement and other volume-driven efficiencies will stimulate new design and manufacturing innovations. Lower prices will accelerate design activity at the advanced nodes and new applications will emerge, leading to the next wave of growth in late 2013 or early 2014."
Indian semicon industry in 2013?
Finally, I turned my attention to the fluctuating fortunes of the Indian semiconductor industry in 2013. Dr. Rhines said: "Earlier this year, I had the pleasure of keynoting ISA Vision Conference in India where I discussed the growing frustration within India over the country’s apparent delay in becoming a major player in the fabless sector of the semiconductor industry. The pressure will only become more intense as India’s consumption of electronics is predicted to exceed $400 billion by 2020.
"Fortunately, India has all the elements in place to cultivate a vibrant, growing fabless semiconductor industry. First, India enjoys worldwide leadership in high tech with some of the most influential design teams in the world. It is already a leading provider of design services and silicon IP, with the world’s third largest number of silicon IP companies headquartered in India. India also has one of the richest pools of creative engineering resources and educational institutions in the world, graduating the second highest number of university students per year in the world, with a growing number of them engineers.
"Recognizing the region is poised to become the next great fabless incubator, a growing number of angel investors, both in India and in the West, are eager to fund new companies in India. A particularly successful model has been fabless companies headquartered in the US with the majority of work, and the innovation, being done in India. Beceem was a good example (acquired by Broadcom in 2010 for $316 million).
"There is a fertile environment for creating multi-national fabless semiconductor companies in India. Remember, it takes time to establish and grow a new industry. Qualcomm, for example, started as a contract R&D services organization in 1985 and introduced its first IC product three years later. It spent the next 20 years revolutionizing the wireless communications industry, climbing up the list of top semiconductor companies. In fact, the average age for leading fabless and IP companies worldwide is over 20 years old."
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