Who is in the Driver's Seat? Regions, industries and consumers driving tomorrow's electronics value

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Forecasts are slightly mixed but mostly conservative for the second half of 2008. Consumer spending in North America and Europe continues to slow, negatively affecting many in the electronics industry. ASP declines are widespread: from the continued memory slump to the latest troubles for flat panel TVs and displays (cf., "Flat Panel Displays" in this issue). Yet growth is still out there, believe it or not. Understanding tomorrow’s enterprise and consumer electronics demands provides significant insight to market positioning for new growth sectors and drivers along the electronics industry’s value chains.

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Recent announcements by AMD and Hynix (http://www.fabtech.org/content/view/65676/ and http://www.fabtech.org/content/view/65678/) underscore the challenges facing many in the electronics industry: conservative capital expenditures (CAPEX) and research and development (R&D) spending; increased outsourcing for both design and manufacturing; tightening capacity and utilization; protecting declining ASPs through tight inventory and order management; increased participation in consortia; and related value chain re-alignments.

Despite generally bearish global markets, semiconductors, with important nods to ICs and MEMS, continue to show good growth particularly from personal computing (PC) and mobile phones, both showing strong double-digit growth for the first half of 2008. While PCs and mobile phones are the lead drivers, there are other important drivers at work.

Industry and business driving growth
The automotive industry is a prime example of an end market driving semiconductor growth in specific areas (cf., www.eetimes.eu/germany/209400562, http://eetimes.eu/environment/206105168). With a compound annual growth rate (CAGR) that has slipped to between three and four percent for 2008 and intensifying competition, automotive manufacturers are requiring lower margins and more features from electronics OEMs to provide new value for automotive infotainment, personal navigation devices (PND), fuel efficiency, safety enhancements, fuel alternatives and hybrid vehicles (www.automotivedesignline.com/209101160). Additionally, automotive manufacturers are facing a new round of emissions and safety standards taking effect in 2012 in the United States and in 2014 in the European Union. According to an iSuppli briefing on 24 July 2008, the heightened emissions, fuel and safety standards are forecasted to boost the automotive MEMS market up to US$2.2billion by 2012, an eight percent increase from 2006 levels (cf., www.automotivedesignline.com/209100649). Additional semiconductor revenue growth is being seen as US consumers are downsizing their automobiles, while still expecting luxury-class features.

Some segments of the business sector are driving growth, particularly as they seek to increase value for their consumers in the face of tightening competition for revenue. A recent press release by iSuppli forecasts an astonishing CAGR of 61.5 percent, reaching US$2.3billion in 2012, for global hotel TV shipments (www.isuppli.com/news/default.asp?id=9075&m=7&y=2008). Given recent slowdowns in the consumer flat panel display (FPD) TV market, this business sector opportunity is even more significant.

Another FPD driver is enterprise demand for monitors, poised to take advantage of favorable pricing to switch out remaining CRT displays. The movement to more energy conservation to improve green standards as well as cost is proving to be a secondary driver from the business sector: desktops and notebooks with reduced power consumption, improvements to memory and speed, as well as new server and networking capabilities. As forecasters predict increases in telecommuting, there are additional opportunities for network devices and service providers (who, in turn, will upgrade their infrastructures thereby driving revenue in the electronics industry).

The energy industry has also become an important driver for and R&D collaborator with the semiconductor industry. New energy incentives are expected to be released in the second half of 2008 by the U.S. Government (http://online.wsj.com/article/SB121695095431383509.html). Solar, photovoltaic and wind all provide important opportunities for the semiconductor industry because of the electronics involved in harnessing and then regulating the energy produced. Research in nanotechnology will gain from the U.S. Department of Energy's efforts to widen the consortia for exploring alternative energy sources (http://www.eetimes.com/showArticle.jhtml?articleID=209400166&cid=NL_eet). At a time when CAPEX and R&D budgets are facing cuts, inter-industry consortia to advance new technologies are an important lifeline.

A more immediate and tangible revenue driver from the energy industry is the demand for smart meters (http://www.edn.com/article/CA6572681.html). As energy costs rise, the original barrier of sunk cost for purchasing smart meters is falling. Energy providers and consumers are realizing that reductions in energy usage through smart metering is becoming more profitable, and so demand for these electronic devices is increasing. This is good news for ICs, network equipment, and others along the smart meter value chain (cf., "Power Play" in this issue).

OLED and LED lighting is forecasted to completely replace incandescent lighting during the next decade, and the EU is backing OLED research with US$31million for the next three years through a research consortium for just this purpose (http://www.powermanagement-europe.com/208800396). While OLED and LED lighting alone is not part of the semiconductor value chain, there are considerable R&D benefits that the electronics industry will reap and translate into consumer electronics as a result of advancements to this technology.

Consumer demands
The International Monetary Fund (IMF) recently upgraded its 2008 outlook for global economic growth from 3.7 to 4.1 percent (http://www.imf.org/external/pubs/ft/survey/so/2008/RES071708A.htm). Interestingly, the main factor leading to the IMF's upgrade is the volume growth from emerging markets and new middle classes, despite the higher inflationary trends. While the maturing market consumers may be slowing their consumption, the emerging markets' middle class consumers and first time, low tier consumers are making up the margin differences in sheer volume. But this rebalancing does not alleviate the stressors on the electronics industry's value chains, although it is presently saving the revenue stream of many companies.

The strongest global consumer demands are found in the automotive, mobile telecommunications and TV markets. First-time buyers and lower priced consumer electronics are the most significant drivers of revenue by volume worldwide: ASP drops in CRT and FPD TVs for emerging and mature markets, respectively; and low cost (sub US$30) mobile phone markets; new products such as Tata's Nano automobile, for the Indian market, to name some product leaders. Despite economic conditions, there continues to be strong consumer demand for top tier, feature rich smart phones and multimedia devices such as the 3G iPhone and Apple's iPhone competition from Samsung and LG (www.eetimes.com/showArticle.jhtml?articleID=209401102).

Consumers worldwide are still purchasing, and handsets are among the highest volume products, estimated to reach "nearly 1.3 billion units" in 2008 (www.eetimes.com/showArticle.jhtml?articleID=209401102). Increasingly, consumers are relying on mobile devices for an expanding array of functions, and in a widening arena, from home to car and 'on-the-go.' Personal mobile devices (PMDs) and mobile phones are quickly merging to become multimedia handsets, supporting image capturing and enhanced audio and video capabilities. According to Multimedia Intelligence, "[b]y 2011, almost 9 of 10 handsets will be multimedia handsets." (www.multimediaintelligence.com, "Multimedia Handsets: The World’s Most Ubiquitous Entertainment Device"). The new features and capabilities required of multimedia handsets coupled with decreasing prices are among the leading drivers for long-term, sustained growth in the electronics industry.

The individual consumer holds the keys to the future
iSuppli recently released a statistical model of the electronics value chain exploring a 10 year horizon for growth drivers (http://www.isuppli.com/news/default.asp?id=9060&m=7&y=2008). Importantly, this synthetic view of the electronics industry highlights the individual consumer as a central, convergent point for next generation technologies. iSuppli forecasts wireless and social networking areas to be lead drivers for growth. As the consumer increases demands for wireless applications, "a beneficial cost spiral […] will span seven billion users in the next 10 years" (ibid.). Not only does the consumer's utilization of technology point to specific growth areas, the manner in which the individual consumer incorporates electronics products into his or her daily life provides insight to the next set of drivers for very specific sectors in the electronics industry. The "new value creation" of this near future moment for the telecommunications, media, and technology (TMT) sectors is estimated by iSuppli to be at US$2.5 trillion over a 10 year period.

The individual consumer is increasing connectivity along time and depth of use scales. This means that consumers are demanding more access in terms of ability to remain on-line, be connected with others ('always on'), and enjoy richer features and content manipulation capabilities. The continued double digit growth and general strength of the PC and mobile device markets underscore the importance of the individual as the sustainable, long-term driver for semiconductor sales. Consumers' demands translate into the following sets of drivers for present and future semiconductor growth opportunities:

  • Always-on capability: power consumption improvements
    • Batteries
    • Recharging capabilities (e.g., new USB recharging technology)
    • ICs (power, driver, etc.)
  • Interfaces: improved visual, audio, text capabilities
    • Thin film technology (TFT) (e.g., e-paper, touch screens, etc.)
    • Analog ICs to translate digital signals for better audio signal quality
    • Innovative data input devices for encoding messages (e.g., text, voice, visual, etc.)
  • Connectivity: network and service improvements
    • Internet protocol (IP) consumer electronic devices (i.e., personal IPs)
    • IP wider area connectivity (e.g., WiFi, WiMax WLAN, etc.)
  • Memory: memory type and amount, iSuppli forecasts 1 Tb maximum per person
    • Memory advances (e.g., 3D stacking, nanotechnology)
    • ICs and System on Chip (SoC) designs governing devices
    • Content type will drive specific technology advances:
      • For example, e-book versus gaming - different demands push different types of visual, audio, and connectivity improvements;
      • seamless data transfer and refresh between devices (inter- and intra-individual);
      • real-time, personalized data content (preset and anticipatory);
      • social networking capabilities for various purposes (business versus private).

 

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