This sector brief provides background to the “green economy” related global market changes that are propelling growth in the semiconductor and electronics industries. This brief is also intended to provide a backdrop for topics addressed in this issue of MarketWatch Quarterly, such as understanding the critical role and proliferation of energy efficiency solutions to the next wave of significant semiconductor growth, and the role of new geo-economic shifts in semi, particularly in the European market.
New, significant growth for semi
The next major wave for semi growth lies at a global and industrial crossroads: the convergence of energy efficiency and electronics. The convergence of these sectors is important to the electronic supply chain as it fuels new growth markets along with new electronic products for semi. The nexus between energy efficiency and the electronics marketplace has been made clearer and clearer and was an important (and positive) topic at the recent meeting of the UNFCCC, COP 15, in Copenhagen, Denmark.
The consensus view of COP15, at least politically, was that is was not a success. The world press called it a "Melt Down", "You Blew It" and "Nopenhagen." There was, however, progress on the commercial front. Among the headline-stealing heads of state and celebrity economists and climatologists were a pragmatic group of Business and Industry Non-Governmental Organizations (BINGO) delegates. Their focus was on immediate solutions and how to marry private sector technology with public sector benefit. For many, particularly mayors and city planners, it is clear that climate change issues are of great immediate concern for the world's larger urban cities. This is not simply stating the obvious; it is the origin for a host of policies, standards, agreements and incentives that will lead to significant growth for semi. For urban centers, there is no 'luxury' of delayed international accords or global plans to be reached decades down the road.
Why? The role of urban centers
Urban centers are not only the greatest population growth centers -- they contain the largest percentage of consumers. Urban centers are also the expellers of 75% of annual global carbon emissions – when change in energy and emission behaviors happen, it will happen in urban centers first, period.
Urban centers are also driving immediate change in response to the effects of climate change simply because many of them face climate problems now. Cities around the world are experiencing significant 'urban heat islands', public health issues, energy consumption and grid reliability problems, as well as transportation, infrastructure, and importantly, the devastating effects of natural disasters caused by increasingly severe storms, wildfires, droughts and similar events.
On the face of things, these problems might seem to fall more in the realm of an ideological, political or geographic discourse than as obvious reasons to herald the next significant growth trend in semi and for all sectors of the electronics industry. Yet these are exactly the problems that are the heart of the impetus for the immediacy and durability of such a claim. Presenters at the Climate Congress and Mayors' Summit held at The University of Copenhagen, concurrent with COP15, made clear the solutions that are needed and being implemented right now. The key to these solutions are found in innovations and improvements to electronic devices and their critical semiconductor components.
How? New electronics products enable efficiency
The most immediate energy solutions for urban centers, at the very least, are truly not that disputed and are found in real energy efficiency opportunities. Energy efficiency is a relatively mature set of solutions with rapidly expanding technological aspects. Energy efficiency today is one of the newest consumer and commercial electronics sectors enabling all types of consumers to have hands-on, improved energy distribution and monitoring systems. The heart of these solutions is the nexus of energy efficiency and semi as industries. Energy efficiency has been and will continue to be the single-most important hands-on energy and economic management tool for consumers and therefore for the designers and engineers of electronics.
While energy efficiency of electronics products is by no means a new idea, significant increases in consumer and commercial demand has already begun and is forecasted to skyrocket over the next few years. Further supporting the demand cycle are the new and upcoming legislated requirements for improved efficiency and energy use standards now heightened in the wake of COP15. What this means for the semiconductor and electronics industries is the increased reliance on chips and improved system on chips (SoCs) that not only increase the efficiency of electronics products themselves, but also, and perhaps more importantly, become their own electronics market with various product types.
This emerging electronics market critically includes products such as advanced metering, monitoring and network devices that enable consumers of all types (individuals through industrial) to control, in real-time, their energy consumptive patterns. Energy consumers are now being empowered to decide individually or delegate the decision to their 'smart device' software, what, where and how to allocate their energy consumptive behavior (and their money!) through traditional network configurations as well as through improving mobile and remote devices receiving data through two-way enhanced connectivity, the start of the 'smart grid'.
When? The smart future is now
Hopefully, it is becoming clearer why the political machinations of the recent UNFCCC COP15 summit is an indicator of the economic mechanisms that are driving this emergent and significant market sector in semi. This new market is set to have as great an impact on and permeation throughout our industry as PCs and mobile phones quite simply because of its global reach.
The ramifications of climate change create the immediacy of urban centers' needs for solutions to existing problems of energy consumption and efficiency issues and behaviors that are taxing the very infrastructure and sustainability of these major cities at economic, social, infrastructure, health and environmental levels. The world's major urban centers have allocated key parts of their annual budgets for energy. For example, New York City spends roughly US$45million per year on energy alone. To summarize Dr. Shagun Mherota of Columbia University during the Mayors' Summit in Copenhagen, the money is in these cities' budgets but it needs to be re-allocated to enact climate change measures. These measures include better use of energy and less stress on power grids; among the quickest, most effective solutions is reduction in consumption through less waste by enacting energy efficiency measures.
'Smart' solutions are high-tech
The technology to reduce consumption, lessen stress on power grids and relieve the need for producing energy that is simply wasted is well underway. For example, electronic products with energy efficiency ratings are commonplace, such as The Energy Star program in the US and The EU Energy Label. But today energy efficiency also includes improved battery life to reduce the need for recharging devices; the adoption of energy monitoring devices that alert consumers to reduce unnecessary energy use (e.g., when premises or devices are not in use, when peak periods require greater conservation measures, etc.); the ability of consumers of all types to either program energy use profiles that are engaged automatically by electronic monitors and devices; among other efficiency solutions. The R&D is complete for many of these devices and they are well beyond prototypes.
The final question is how can governments and industry promote these energy efficient products (and the semiconductor industry)? Private industry alliances, like the Zigbee Alliance, are creating standards for wider deployment of many of these devices. On the government side, the US Department of Energy has already been expending significant funds through the American Recovery and Reinvestment Act (ARRA) as matching grants awarded to major energy distribution companies in some of the Solar American Cities, such as CenterPoint Energy in Houston, TX. Similar government programs in developed nations have been enacted and are now being modified based on COP15 agreements and developing nations are also implementing programs.
Energy efficiency, carbon neutrality/footprint, power management (from components to devices and including electricity production itself), these are the mantras and the global government mandates that are now coming to a head and propelling forecasted strong growth for new technology solutions and devices, with a particular focus on the improved capabilities of their components.
One of the important aspects of the proliferation of Advanced "Smart" Metering Devices (AMDs) is the related proliferation of Home Area Networks (HAN) based on the Advanced Metering Infrastructure (AMI) that is the new, bidirectional networked environment connecting the home (appliances, smart HVAC, computers, etc.) to utility plants.
AMI and HAN entails the introduction and proliferation of 'smarter' home appliances, and mobile internet devices (MIDs) and/or home computers, digital thermostats with AMI connectivity, and similar electronic devices. Along with these residential devices and their improved components, are the increased number of AMDs, by the millions, each with multiple slots for connectivity to HAN, WAN and/or LAN, therewith also driving significant growth in network devices and related equipment as well as servers and data storage capabilities at businesses and utilities now facing streaming data from these meters; data they've never had access to before.
When will 'smart' happen?
The answer to "when?" is now. As a result of government incentives and investment programs in many nations has spurred the necessary adoption and proliferation of 'smart grid' infrastructure or AMI. In the US particularly, these multi-million dollar ARRA investments in smart grid initiation and the requisite product installations of Advanced Metering Devices (AMDs) and Advanced Metering Systems (AMS) in urban centers have lead to millions of 'smart meters' and network upgrading set to continue over the next years and backed by public and private investment. The bulk of the global market growth for the semiconductor and electronics industries lies, happily, before us.
With these economic and market drivers in place and supported by billions of dollars of funding, an array of improved and new products with their ancillary devices and bill of material (BOM) are coming into demand. For example, smart meters in the US are forecasted to hit 10 million devices installed in 2010 and 250 million by 2015 for a detailed interactive map; in Europe, with the EU-2020 target of 80% penetration, a continued 16.2% CAGR remains steady through 2014 to reach approximately 100 million, according to reports last year by Berg Insight. Now consider all of the complimentary electronics products, new appliances, two-way communication devices and networks, and the entire supporting infrastructure for just AMI and the related smart metering.
'Smart' is the trend for this new decade and the next wave of major growth for the semiconductor industry. A more detailed look into the markets, components and forecasts for semiconductor growth as a result of the increased demand for 'smart' products and the 'smart grid' is explored in this issue of MarketWatch Quarterly (cf., "The 2010 Data Wave: How smart solutions will drive semi growth").