The Last Word
Getting the Big Picture
I sometimes divide information into “heads down,” which describes new design and manufacturing tools, for example, and “heads up,” which includes changes in the worldwide economy, consumer spending trends, and other “big picture” data.
The big picture has played a more important role lately. For much of the last 50 years, the semiconductor industry lived largely in its own world. Driven by new killer products such as the PC and the smartphone, demand was very strong. Companies in Japan, South Korea and Taiwan, all invested to get into the semiconductor game. As Bill McClean of IC Insights pointed out, IC unit growth averaged 9% a year for 20 years, an amazing run.
The big picture has been changing, however, creating a “new normal” with more reasonable expectations. As the industry has become closely linked to consumer spending patterns, McClean noted that since 2010, IC revenue growth has slowed and unit growth has dropped to about 6–7%.
|Bill McClean, President, IC Insights|
The correlation between worldwide GDP growth and semiconductor revenues has been almost perfect. When the world economy is weak, “consumers won’t buy electronic systems because they don’t have the money. When the economy is good, people say ‘I want that TV, I want to upgrade my cellphone,’” McClean said at a recent SEMI Austin Forum.
But the worldwide economy has been in slow mode, and this year it may not quite reach a 2.5% growth rate, below which the world’s economy is in recession. “We really need the worldwide GDP to get going in order for the IC market to get going,” McClean said.
China has been a locomotive for worldwide economic growth over much of the last decade. Inevitably, China’s pace is slowing, but its push to become more self-reliant in semiconductor production has created what McClean referred to as a “mini bubble” in semiconductor fab and equipment spending. It will be interesting to see whether China can build up its talent base and meet its own lofty expectations for IC production, or whether its investments go unrewarded.
Consolidation is another big picture trend. Indeed, the morning of the SEMI Austin event, Qualcomm announced its $38 billion acquisition of NXP Semiconductors. That deal, if approved by regulators, would be slightly larger than the $37 billion acquisition of Broadcom Corporation by Avago Technologies Ltd. (forming the combined Broadcom Ltd.) last May. Over the last two years, chip industry M&A has exceeded $200 billion, compared with just $50 billion over the previous five years.
|Patrick Ho, Director, Research Technology, Stifel Nicolaus|
Patrick Ho, semiconductor equipment analyst at Stifel Nicolaus, said the continuing consolidation trend “has brought on a lot more rational spending” as large semiconductor companies are no longer chasing market share at the expense of profits.
Speaking at the SEMI Austin Forum, Ho pointed to the need for companies to acquire new design skills and the intellectual property to succeed in new markets such as Internet of Things (IoT), automotive electronics, or virtual reality (VR).
Acquisitions are driven by competitive pressures: worries that the competition may be getting entrenched in a new market. Qualcomm, he said, sees big competitors such as Intel making IoT investments, for example, and bulks up in size and IoT depth by buying NXP.
IoT is sure to be an important battleground for all semiconductor vendors. But Ho said VR and augmented reality (AR) will become major drivers after 2020, when faster processors and better displays reduce the size of VR equipment.
“VR will enable significant growth for gaming, but what else?” Ho asked. Football fans might use VR to “buy” tickets to NFL games and sit at the virtual 50-yard line for their favorite teams, all from the comfort of their living rooms. The NFL is working on it, he promised. Home improvement stores are beginning to offer virtual showrooms so customers can put on a headset and see how the various offerings in the home remodeling section might appear.
“We are still behind on the hardware. We need thin goggles that are more user friendly,” Ho said.
Tom Ortman, president of Austin-based Concurrent Design Inc., attended the SEMI Austin event and said he believes AR will play a big role in education and medicine. Professors will use the technology to show students images that augment the class lecture. Surgeons will be able to call up visual images that assist them as they do complicated medical procedures.
“I think augmented reality will be more important than virtual reality,” Ortman said.
It is all part of the big picture.
David Lammers is an Austin-based technology journalist.