Semi penetration will continue through base station build-outs, network conversions to handle increasing data traffic, and device proliferation; mobile data is expected to increase tenfold by 2016. These demand drivers support a positive cycle for device functionality and service; the outcomes are new partnerships and new chipsets.
There is no question that the broadly-defined 'mobile sector' is the crowned king of growth for the semiconductor and electronics industry. It's true that some forecasts for smartphones see the device as reaching a penetration point at the higher end of handset consumers. But room for growth exists as the floodgates open for smartphones to replace lower-priced feature phones and as "super phones" gain traction among early adopters (see for example this on Intel chip design from EETimes). Similarly, tablet PC and eReader devices continue to see increased competition, which has widened (and lowered) the price range, making lower-priced models available. Finally, mobile computing, whether on a handset; tablet (of some genre); or a new, highly-portable ultrabook, is going absolutely nowhere but up.
The macro for mobile: Up, up and further up
The brightest spot in an overall lackluster 2011 market for semiconductors and electronics was certainly the mobile, or smart wireless device (SWD), sector, both for components and end-product devices. 2012 is bringing with it considerable hope for a true broad market rebound, at least by 2H12. This optimism is supported by the SEMI book-to-bill data in recent months, the SIA and SICAS data, and a wide swath of industry and financial analysts (cf., Credit Suisse "Electronic components update, Vol. 13," 28 February 2012).
Credit for a rebound comes, in part, from the continued stabilization of the macroeconomic climate. While the EU economic situation continues to play out, there is general analyst consensus that the worst may be behind and economic stability will set in, for now. Also in the US, the data trajectory is positive and seen as on a continuously improving path with jobs, housing, and consumer confidence on the rise. Furthermore, as IC Insights reminds us in their latest research bulletin, election years in the US tend to also be boom years for the semi market because of short-term legislative action taken to bolster economic activity. The US is not the only country in an election cycle; Russia recently held its own, and France, China, South Korea, and Taiwan will all choose leaders in 2012, also with expectations of politico-economic changes to improve markets for votes. While the emerging economies followed a cautious momentum during the past year, and China recently trimmed its growth projections by a point, the growth opportunities for emerging economies are still strong.
Continued semi penetration is set to grow through devices' base station build-outs, network conversions to handle increasing data traffic, and the devices themselves. Importantly, mobile data is expected to increase tenfold by 2016, with a fivefold increase in users for the same period, based on Credit Suisse's recent review, "Global Telecom Equipment: Mobile World Congress 2012 Takeaways" (p. 5). Why the disparity in data-to-user increases? According to the same report from Credit Suisse, "74% of time spent by smartphone users is on non-voice related services" (p. 5). Furthermore, the strong demand for more and more mobile data capabilities is increasing. Among these demands are the machine-to-machine (M2M) data transfer capabilities for data storage, access, and manipulation as a cloud service, as well as M2M Near Field Communication (NFC) transactions, for mobile payment services (using a vendor's hardware) making a user's smartphone their ''electronic wallet'' from which payment is taken and e-receipts are provided. The roll-out for these services has varied globally, and the resulting impact for the semiconductor and electronics industry is significant.
The post-PC era requires bandwidth
The future for many along the semiconductor and electronics supply chain, especially those at the services end, requires mobile offerings for data management, transfer, access, and the exploding storage question. As announced on March 7th during "the New iPad" release, Apple sold 315 million devices in 2011 and 62 million in 4Q11 alone; 15.4 million of those were iPads (see engadget's liveblog of the event ). Based on this robust demand for Apple's many mobile computing devices, Apple CEO Tim Cook stated that he believes we are now in a "post-PC era."
If Cook is right, what does this mean for the semiconductor and electronics industry? Certainly it should not be considered a death knell. As we discussed a year ago in Smith MarketWatch Quarterly Vol. 5, No. 1, we should not be thinking that a post-PC era means an end to the PC; rather, we should be understanding "the post-PC era" characterization to mean that the form-factor, the device, and the loci of computing have shifted from a desktop or laptop to the tablet PC, ultrabook, and similar SWD forms, including smart- and superphones.
Simply put, users have changed their device format due to their requirements for increased portability (size and weight), connectivity (wireless connection for M2M data transfer and web and telecommunication access), power (battery life), and features (capability and functionality). The result has been, among other things, an offloading of data storage from the device itself to cloud or remote M2M connections to handle and manipulate the vast amounts of data demanded for personal and business use. With this mobilization of computing and smaller device footprints, non-traditional PC devices have taken hold. Hence, we can understand ourselves to be in a "post-PC era" from a wider-industry perspective.
Offloading data storage has put chips related to connectivity in the spotlight. Perhaps the biggest buzz along the SWD supply chain, as witnessed at both January's Consumer Electronics Show (CES) and February's Mobile World Congress (MWC), are the moves to dual core and quad core processors for mobile handsets and tablets, and the propelling of Long Term Evolution (LTE), a mobile communication standard, to the forefront, due in no small part to strong 4G demands for faster mobile data transmission. As Credit Suisse data shows, one quick snapshot of the importance that LTE is having is that the multi-core processors for SWDs, and particularly smartphones, are "scal[ing] up to 1.5GHz and now adding LTE. On the LTE side, Qualcomm noted that they expect LTE to be around 1/3 of its chipset volumes exiting FY2012" (ibid., p.5).
In turn, the chipsets that are supporting these increasingly smart and very mobile devices are becoming more complex (the topic of this companion piece on complex chipsets in this MarketWatch Quarterly edition), and are increasing in penetration rates. The reasons and the demand drivers for these changes are simple and easy to understand, as summed up in this FT interview with Franco Bernabè, chief executive of Telecom Italia and chairman of the GSMA, the industry's global lobbying body. "Mobile broadband is becoming the most important access route to the internet. 'Almost half of the world's population will be connected to mobile broadband,' [Bernabè] says."
"9 [billion] mobile connections that GSMA estimates will be active by 2015," according to the sameFT interview, the growth of M2M connections is where the connectivity numbers truly become staggering. The problems and solutions lie in the agreements that are still being made between wireless carriers and service providers, and the simple limitations of existing networks that need new base station definitions and supplementing to provide the cellular (data and voice) coverage demanded (see the EETimes Confidential article on MWC and wireless nets (subscription required).
The response is well underway from the component and hardware OEMs, providing multiple solutions to deliver increased bandwidth and means to offload mobile data traffic from the already-congested cellular voice networks. The variety of solutions is part of the problem, though; for new M2M services to roll out, and thereby demand new chipsets to support the data transfers and communication, there needs to be a standard, or a limited set of standards. The stall is due to the present range of spectrum bands that translate to requiring chip manufacturers to handle many different frequencies for their RF chips.
The growth of LTE and LTE-Advanced solutions, which is also surpassing WiMax now, remains a bit mixed in terms of global adoption. However, the major North American telcos’ supporting the new iPad's 4G-LTE capabilities, as highlighted by Apple during the March 7, 2012 release, will likely add focusing power to LTE adoption. iSuppli recently updated its forecasts on 4G LTE adoption and wireless infrastructure spending here:
Capital spending on LTE technology is projected to reach $24.3 billion in 2013, overtaking for the first time the 3.5G space, which will end its five-year run this year as the dominant category in wireless infrastructure spending. 4G expenditures first appeared in 2007, and the leap to the apex will take place within a relatively short span of six years. […]
The climb by 4G LTE will be especially spectacular in 2013, up a stunning 179 percent from $8.7 billion this year, on top of a 103 percent surge in 2012. […]
All told, global carrier spending on wireless infrastructure will grow from $42.5 billion in 2011 to $45.1 billion in 2015. The share of 4G spending by 2015 will reach $36.1 billion, compared to just $9.0 billion for 3.5G. Carriers this year also will spend approximately $21.4 billion on cables, plants and site procurements, as well as $74.3 billion on maintenance and software upgrades.
Regardless, there are still some standards-agreements yet to be made. Once that occurs, the takeoff of the chipsets and RF chips that support the "winning" standards will quickly build, simply based on demand and current bandwidth capacity constraints. With leaders such as Cisco, TI, Freescale, Renesas, Intel, Samsung, Qualcomm, and many others joining the push to develop chipsets and SoC solutions incorporating LTE for 4G capabilities and/or providing alternate solutions to ease the bandwidth constraint problems, it is very likely that iSuppli's updated forecasts are not far off, if at all.
Mobility is the new era
As the proliferation of SWDs continues without abatement and the device form-factors continue to increase (phone, mini-tablet, tablet, ultrabook), competition among OEMs continues. The mobilization of computing is well underway and the solutions for meeting the demands of mobile data transfer and management will be found and met, that much is certain. There is more to understanding the importance of this "post-PC" era, though. There are new demand drivers and new partnerships that continue to be forged across the semiconductor and electronics supply chains. The era of mobility is one in which services and applications combine to be the gateway for users, whether consumer or enterprise. In turn, demand drivers arise from the capabilities and functionality that users push their devices and services to, which then pushes design engineers to meet those demands, and so on and so forth. The exciting part about this rather familiar cycle is that we are really at an early stage in mobile computing, if we look at the market sector from a wide lens.
As Capgemini's Fernando Alvarez recently commented to FT, "Smartphones, tablets and apps have embedded mobile technology in our lives and this revolution is transforming the way we work and interact. Organisations [sic] everywhere must respond or risk being left behind." What that translates to is that the rise in M2M activity is not just for the consumer in the store paying with an NFC enabled device, but, as FT rightly underscores, this rise also means that "mobile communications – particularly in the form of smartphones, tablets and the applications that power them – have moved from the sidelines to the centre of many business growth strategies."