Today's demand-sparse economies have shifted the influence of market drivers to favor the user's feature demands of end-products. These new market dynamics have spurred exciting and interesting R&D paths, changes to chip design, and new strategies for product adoption and market share increases. Of course, these changes also usher in a new competitive arena for end-products and for all companies along the supply chain.
As the ‘green shoots’ of an economic easing emerge for the broader electronics industry, today’s semiconductor drivers are rooted in the consumer experience of electronics and the demands generated by ‘next level expectations.’ Rather than taking the traditional component category approach to reviewing trends and forecasting out, this article will drill down from the hottest end-product drivers and explore the components that are driving movement now and through the next few quarters. We will focus on semiconductor content based on end-markets because the present demand-sparse global economy dictates greater weight paid to consumption indices in understanding and forecasting component trends.
From maturity comes new divergence
While the global semiconductor industry has reached a maturation level with future CAGR ranges at 4-5% and with relatively predictable cyclicity, a more recent trend of subcycles is proving valid (http://www.smithweb.com/sw/en/fall-2008/303-understanding-why-macro-economics-is-a-driver-for-the-electronics-industry and http://www.smithweb.com/sw/en/winter-2009/354-the-supply-chain-is-ground-zero-the-remaking-of-the-semiconductor-industry) . In response to maturation, sector specialization has increased along the supply chain. As a result, subsectors are exhibiting divergent cycles with differing growth rates. As Barclay’s Capital summarizes in its recent annual Semiconductor Handbook 2009:
Rather than one homogenous cycle driven principally by PC demand, we believe that multiple mini-cycles may be developing, i.e., microprocessors, memory (DRAM and NAND), analog and foundry/logic. For example, in 2008, memory markets declined 20% YoY and DSP declined 17% YoY, while logic segment was up 9% YoY and optoelectronics was up 13% YoY. Discretes, analog and sensors were flattish YoY in 2008. […]
[…] capital investment and R&D dollars are more focused on a particular IC product segment. Moreover, each IC product segment (i.e., foundry, DRAM, MPU, etc.) now faces its own competitive environment and demand-supply dynamics that does not necessarily coincide with the other product segments. (6/5/2009, p.43)
There is considerable opportunity in this shift. Freed from broad cycle constraints and aging ideas of where and how advancements will be made, the industry is made healthier through diversification and new foci on end-product improvements. No longer are higher memory density and speed increases the darlings of the Bill of Material (BOM), and the result of this new demand-aware economic point gives us a different perspective into what, where and why certain components are taking off while others may face a protracted wrestling with difficult challenges, such as the ongoing SSD-HDD tug-of-war and memory troubles.
Today’s market dynamics don’t infer an end to amazing technological advances, just a dampening of advances for advancement’s sake alone. As such, discussions have been increasing as to the viability of Moore’s Law, both from economic and engineering perspectives, particularly as we approach 22nm (e.g., http://www.isuppli.com/NewsDetail.aspx?ID=20345,
Fabtech+Newsletter&utm_campaign=22d95a1b0a-fabtech_newsletter_18_06_2009&utm_medium=email, and http://www.computerworld.com/action/article.do?command=viewArticleBasic&taxonomyName=
The shifting motivation driving ICs does not mean less of anything, rather that a broader swath of components are moving toward more effective, efficient, and feature-rich capabilities across a handful of dynamic markets based on end-product demand. The consumer, both individual and enterprise, is still cautious and protective of her purchasing power, but the product that speaks to always-on connectivity and new experiences with added simplicity is drawing revenue.
While there is sector divergence within the semiconductor industry, there is a forecasted convergence for the hottest sector around right now, the smartphone-netbook space. The flurry of market activity and steady demand for these devices is carving out new territories, features, and chipsets.
Figure 1. Converged Devices Increasing Market Share (Source: Barclays Capital Semiconductor Handbook 2009, p. 239 (original sources: Gartner, Barclays Capital estimates))
Slicing and dicing the market: The netbook
While the PC sector has long been the dominant product sector within semi, particularly for microprocessor units (MPUs), there is an interesting and dynamic convergence presently as high-end mobile handsets, ‘smartphones’, and laptops, ‘notebooks’, are blurring the lines between PC and mobile sectors. Netbooks have been the focus of debate for the past few quarters. These smaller, ultralight, feature-sparse notebooks are designed with limited OS functionality, including reduced speed, but emphasize wireless internet connectivity with only routine word processing capabilities. The netbook, originally introduced by Asustek with the Eee PC in 2007 (http://eeepc.asus.com/global/index.html) with the idea of fulfilling the ‘one laptop per child’ dream, has seen increased demand by consumers looking for a lower cost, power efficient, and mostly internet-dedicated device for basic home or travel use, particularly during the global economic recession.
The netbook has been an important end product because of its dedicated chipset demand and the diversification towards other mobile internet devices (MIDs) that netbooks have spurred. Intel’s Atom processor (http://www.computerworld.com/action/article.do?command=
viewArticleBasic&articleId=9134240&source=CTWNLE_nlt_dailyam_2009-06-11) and new Pineview and Pine Trail MID upgrades (http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9134326)
and AMD’s Yukon, Congo (http://news.cnet.com/8301-13924_3-10096494-64.html) and newer Athlon Neo (http://www.amd.com/us-en/Processors/ProductInformation/0,,30_118_9484_15916,00.html), processors are designed specifically for use in netbooks. With the sudden proliferation of netbooks, Intel and AMD are also upping the ante in terms of increasing functionality available through upgraded processors and more competitors such as Qualcomm’s Snapdragon (http://www.qualcomm.com/products_services/chipsets/snapdragon.html) and Nvidia’s Tegra (http://www.nvidia.co.uk/page/handheld.html) and Ion (http://www.computerworld.com/action/article.do?command=
viewArticleBasic&articleId=9134470) are entering the field with both netbooks and MIDs in sight.
The tussle around netbooks is also bringing with it some market dissection. Reports suggest that Intel and Microsoft are working to limit the size and processing definitions for netbooks with the launch of Windows 7 to have upper limits of a 10.1” display and storage of 250 GB HDD or 64 GB SSD (http://www.crn.com/mobile/217700033;jsessionid=5UDV4P5QDEWMOQSNDLPCKH0CJUNN2JVN). We’ll have to see if the market will support this imposed definition by only two companies or not; the motivations are rather self-evident.
While there continues to be some discussion about the potential ‘harm’ of netbooks to the industry because of the lower cost and feature sparse capabilities of these MPUs putting downward price pressures on other ASPs, the chip giants themselves have not conceded this point. The strengthening position favors the netbook as a positive influence in tough time. Barclays Capital recently forecasted, despite lowered overall revenue due to the lower ASP:
We expect Atom microprocessor revenues to be around $760 million in 2009. Including chipsets, Atom may contribute around $1.5 billion for Intel in CY09 up from $500 million in CY08. We note that our current assumptions for Atom microprocessors only include Atom for netbooks and traction with MIDs may provide upside to our current estimates. (Barclays Capital, Semiconductor Handbook 2009, p.99)
The overall MPU ASP data are skewed to the negative, but given the pullback in spending by consumers and enterprises, there are important confounding variables increasing the weighting of netbook MPUs. The netbook market, thus far agreed to be in the 7-10” display range, has seen roughly 6 million units sold during the first quarter of 2009 (1Q09), increasing the market share to roughly 20% of global notebook sales (http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/
http://www.crn.com/mobile/217400832). Importantly, these new portable sectors are allowing for more unit volume sales through multi-level and multi-price, end-product offerings.
Slimming it down: CULV the driver for notebooks?
On the heels of netbook success, but with the higher-end consumer in sight, OEMs and the chip manufacturers have been designing a sub-class of notebooks that meet the portability experience desired of a netbook. These notebooks, called ultrathins, have the increased functionality, speed, and features of the high-end notebook sector, but without the US $1500+ price tag of the top of the line MacBook Air (http://www.apple.com/macbookair/specs.html). AMD’s Congo, an updated version of Neo the dual-core Athlon (http://www.pcworld.com/article/166452/
new_amd_neo_chips_surface_on_hps_web_site.html), and Intel’s Pentium SU2700 processors are among those competing in this category of ‘consumer ultra-low voltage’(CULV) processors designed specifically for the ultrathin market. Not only offering the full OS capabilities, standard keyboards, full graphics interactivity for gaming or image manipulation, these new processors for ultrathins are speaking to improved battery life and faster boot up and response times. Intel’s upcoming 2010 release of the Moorestown chip is a clear example of this strategy of greater emphasis on capabilities, logic, plus lower power consumption while moving towards more widely MID and handset adaptable 32nm SoCs, such as the anticipated 2011 release of Medfield (cf. Barclays Capital, Semiconductor Handbook 2009, p. 100).
Some in the market still worry about the proliferation of netbooks and related MIDs, the success of any end-product lies in the consumer’s evaluation of the merging of interactivity, functionality, simplicity and experience. Whether the market will support other devices such as the smartbook as an in between device above the smartphone and below the netbook is yet to be seen. It bears questioning though, isn’t the high-end smartphone destined to fill that niche?
Handsets: Yesterday’s smart is today’s average
Another upshot of the new MPU proliferation is the waterfall cycle from netbooks to other MIDs, smartphones, and other consumer electronic (CE) devices. As such, the smartphone is no longer the domain of the high-end handset, as new generations arrive on the market, immediately changing what defines a high-end smartphone. This sector waterfall activity is actually a positive, especially since smartphones are the shining stars in today’s demand-sparse economy, and consumers are hungry for these devices despite consumer spending freezes elsewhere.
The handset sector has seen considerable retraction due to the economic crisis, declining by roughly 9 percent QoQ, smartphones are projected to continue their sales growth in the 12-15 percent range for 2009 according to numerous analysts (e.g., Gartner http://www.eetimes.eu/uk/217600608, other analysts such as http://www.eetimes.eu/217600424, Barclays Capital Semiconductor Handbook 2009, and DigiTimes 22 May 2009). Interestingly, according to the Gartner report, the touch screen feature was a major driver in the mid range while the bundling of capabilities around user functions was the driver for the high-end segment.
Figure 2. Global Wireless Handset Shipments and YoY Growth (Source: Barclays Capital Semiconductor Handbook 2009, p. 34 (original sources: Barclays Capital and industry reports))
As the consumer holds the keys to the industry’s future, the next generation feature sets and capabilities are tied more closely to the way in which a consumer interacts with a device: enhancing while simplifying the experience, providing ‘always-on’ and ‘always connected’ capabilities, while handling the range of professional to personal tasks with more intuitively interactive features (http://seekingalpha.com/article/142163-what-drives-consumer-adoption-of-new-technologies?source=email and for more on the hottest smartphones’ feature sets from the consumer’s perspective see http://www.computerworld.com/action/article.do?command=viewArticleBasic&taxonomyName
One technology response to meeting new consumer demands is the increases to system on chip (SoC) designs to address new feature-rich requirements, new sensory interactivity through microelectromechanical systems (MEMS), while providing lower thermal output and reduced power consumption. As a result of new features gaining favor, the incremental memory offerings are no longer the top feature driver for handsets. This component prioritization change is, in turn, adding to the negative forces troubling the memory sector but improving the display and IC packaging sectors.
Touching the looking glass
The display sector is enjoying a boom as a result of the macro-economic situation coupled with the consumer’s interactivity expectations of devices, the latter trickling up to enterprise purchase decisions particularly at customer touch-points (e.g., point-of-information and training terminals, electronic devices, healthcare IT adoption, etc). As consumers increase home-entertainment budgets while reducing travel and other new purchases because of uncertainty in the economic markets, the display sector is heating up globally.
The display boom is presently being spurred by the Chinese and Japanese government stimulus programs for CE purchases. More specifically, the Chinese government’s stimulus packages supplementing CE purchases such as handsets and LCD TV purchases, has now been extended to higher price levels for devices, duration of the stimulus program, and geographic scope to include urban centers. As a result of these government efforts, the LCD TV and LCD IC driver markets are almost as hot as smartphones.
The end-result is the present much needed price stabilization period. The rise in demand for mid-sized LCD TVs, 37” and smaller, and the small-sized screens used in mobile devices are the two display sectors showing the most movement. Utilization levels are already up slightly and demand is pulling pricing up on average of just over a percent for LCD panels. The display makers’ ability to cut production early mitigated the days of inventory (DOI) during the worst of the recession periods and some resurgence is being experienced. China and Japan’s stimulus packages have spurred recent demand, undercutting claims that some of the recent bookings were simply a restocking phenomenon.
In light of economic stressors, consumers in Europe and the U.S. are leery of spending or traveling; as a result, home entertainment and gaming systems, MIDs, and smartphones are showing stronger sales. LCD TVs in the US $1,000 and under price range, the mid-sized panel sector, is showing stronger sales along with netbooks, the small-sized panels under 10”, and finally smartphones, the micro-sized displays at 3.5” and smaller, particularly those with touch screen capabilities. The importance and growing strength of displays is an important new variable driven by consumer demand. This new component hierarchy is, perhaps, best underscored by the top position that the touch screen micro display has on the new Palm Pre’s BOM, coming in at 20% of the total final cost to consumers, according to a recent teardown by iSuppli as reported by InformationWeek (http://www.informationweek.com/blog/main/archives/2009/06/
Figure 3. DisplaySearch’s June Revision for 2Q09 Forecast for LCD TV Units (Source: DisplaySearch, Quarterly Advanced Global TV Shipment and Forecast Report, http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/090617_displaysearch_
While the CRT to LCD TV conversion is well underway globally, the next driver that could bring hope to the lagging PC market (all sizes, types, and end-user sectors) is seen as coming from the increased demand and new interactivity promoted by touch screen technology. The high-end mobile consumer is demanding touch screen of their smartphones while the average consumer is familiarizing themselves with this interactive display technology in shopping malls, grocery stores, airports and other point-of-information/sale encounters. From industrial to enterprise to consumer, the touch screen is a top BOM item, with great expectations of ASP declines as penetration increases allowing for a cascade effect of adoption by automotive and other industries. The present barrier for the PC touch screen market is price. The additional costs associated with these advanced screens is of concern to most analysts as consumers are very sensitive to price versus features today. In the smartphone market, the price difference is not as great as the notebook market. Perhaps the biggest game changer in favor of rapid touch screen adoption is the 2H09 rollout of Microsoft Windows 7, which has touch screen features designed in for both the netbook and more traditional PC/notebook markets. The combined penetration increases from smartphones with Microsoft Windows 7 device draws, make it an almost a given that touch screen ASPs will decline and the breakthrough point will be in 2010.
Figure 4. DisplaySearch’s Touch Screen Module Revenue Forecast (Source: DisplaySearch 2009 Touch Panel Market Analysis, http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/
Device convergence stimulating movement
Today’s marketplace is still dominated by the negative macro-economic state that is only just showing signs of a bottom. While there are green shoots, most markets are still nursing severe wounds and are still in a relatively frail state. That being said, with a bottom being tested presently, businesses along the entire electronics supply chain have had to learn to cope with these new demand-sparse cycles. The result has been more effective reactions to conditions throughout the electronics supply chain: strict and immediate inventory management, reduced DOI, utilization pull backs, profit margin reviews and operating cost retrenchments.
New market strategies involves more than these traditional industry-internal moves, the consumer’s experiential demands from devices is gaining strength. Consumers are not just those in the store, but the enterprise consumers who are also re-thinking their customer and employee touch-points. Today’s electronics users have expectations beyond higher density memory and are more focused on how they interact with their devices. Being able to provide full mobility, portability and connectivity combined with a new level of intuitiveness and simplicity. As mobile devices for the enterprise, industries, and consumers begin to converge and re-dissect the MID + mobile market. As new sensory experiences dominate the future for nearly all sectors and markets for the electronics industry, new ideas around features, architectures, and chip + SoC designs will likely prove to be at least as stimulating a challenge as Moore’s Law has been thus far.