The expansion of IoT and the wearable device market has significantly added not only to general semiconductor growth but, especially, to the demand for embedded ICs and sensors, as smart, connected devices are the demand drivers across products and markets, including the key growth areas of health, medical, industrial, and consumer. With this growth has come the realities of economic demand trends, increased volume which has pushed down average selling prices (ASPs) and more price declines in the face of volume increases is expected, as IC Insights recently forecasted.
Semi still seeing growth – embedded and sensors included
Embedded ICs across the board have seen strong growth, much as the entire semiconductor industry has. Earlier this week, SIA published their February, global semiconductor sales data showing "[US] $27.8 billion for the month of February 2015, an increase of 6.7 percent from February 2014 when sales were $26.0 billion. Global sales from February 2015 were 2.7 percent lower than the January 2015 total of $28.5 billion, reflecting seasonal trends." As the report from SIA states, the February growth data make it 22 months in a row that we have seen semiconductor sales increase on a year-over-year basis, globally.
Regionally, growth was by far the strongest in North America, reaching a 17.1% growth year-over-year, followed by Asia Pacific with 7.6% for the same period. Europe and Japan both saw single digit declines in sales and month-over-month all regions saw a decline which is likely due to seasonal cycles. The leading category of semiconductor products based on SIA's tracking was growth in DRAM and analog ICs, both seeing double-digit growth on a year-over-year basis.
Sensors have also been leading in volume growth which IC Insights forecasts will see a CAGR of 11.4% during the 2014-2019 period while sensor sales and will "reach 19.1 billion sensor shipments worldwide in five years and revenue growth is projected to rise by an annual rate of 6.0% in the forecast period." This is actually a slow-down compared to the previous period 2009-2014 during which time sensors reached a CAGR of 17.1%, according to the same report.
Volume growth hurting sensor ASP
There is no question that sensors and embedded ICs will continue to be in high unit demand going forward, particularly with the hot demand drivers of IoT and wearable devices. The expansive market reach of these drivers is also adding to the steep demand curves and rapid rise of these component types. However, along with this ongoing and sustainable demand is the decline in ASP. As IC Insights further reports:
ASP erosion is partly a result of intense competition among a growing number of sensor suppliers pursuing new portable, consumer, and IoT applications. Sensor ASPs are also being driven much lower because many new high-volume applications require rock-bottom prices. The fall in prices is not only undermining revenue growth in the highly competitive sensor segment, but it is also now squeezing profit margins among suppliers.
In short what we are seeing is a combination of successful component category growth, that does bring with it increased competition leading to price declines. With volumes continuing to expand, and little likelihood of a pullback unless/until there is a wider market pullback, this trend for sensors and for embedded ICs more generally is likely to continue. However, that being said, some sub-segments in higher demand can also experience temporary shortages due to high-demand and cause price fluctuations in response to decreased supplies, of course. Overall, however, there is a commoditization trend clearly evidenced in the industry data.