Worldwide Semiconductor Industry’s Myths Busted





Worldwide Semiconductor Industry’s Myths Busted Date: Thursday , October 01, 2009 Undoubtedly, semiconductor industry is entering a mature phase marked by slower growth like other major industries such as automotive steel and chemicals. The prima facie evidence of this trend cited by many industry pundits is the apparent slowing of adoption of 65/45 nm (nanometer) technology. But is this a reality? What’s really happening in the Semiconductor industry across the world? It’s indeed great to understand. There are several myths doing rounds across the industry, which are truly far from the actual reality in the industry. Walden .C. Rhines, Chairman and CEO of Mentor Graphics says, “The current period is a period of great opportunity for change, growth and new products, but because there is less money it becomes harder to do new things.” For instance, the advanced nodes such as at 45/65 nm are believed to be expensive and difficult to use, adoption has slowed. However, it is not the case. The design adoption of 45/65 nm technologies shows that it is faster or similar to earlier technologies. Though the actual utilization capacity of foundries dropped below 50 percent for many technologies because of the crisis of inventory liquidation that occurred late last year and early this year, the capacity utilization of 45/65 nm technologies has recovered very rapidly. “All this shows that the adoption of new technologies is not slowing down, rather occurring at the same rate,” he adds. Many feel that the semiconductor industry is consolidating because of the several acquisitions that have taken place in the past few years. When the revenue concentration of the semiconductor industry is considered, the market share of the number one semiconductor supplier has remained the same in 2008 as compared to 1972. “Intel’s market share today is just about the same as Texas Instrument’s in 1972,” points out Rhines. The data also shows that the total market share of the top 10 companies has reduced in 2008, when compared to almost four decades ago. Contrary to the market facts, the semiconductor industry is not consolidating, but deconsolidating since the 1960’s. Between 1965 and 1972, over 29 new companies entered the market, including Intel and AMD. In 2007, all the top 10 companies were IDM (integrated device manufacturers)- who manufacture products in their own wafer fabs. A year later, Qualcomm became the first fabless company to make it to top 10 and half of the top 10 companies have announced their intent to be fablite or fabless in the future. In the semiconductor industry the consolidation does not occur, because the dynamics of the industry reduce the cost per transistor about 35 percent per year. The reduction enables new applications, which leads to the emergence of new markets and the industry changes. So, some companies disappear and new companies are established. “The semiconductor industry is not consolidating, it has been relatively flat,” adds Rhines. Semiconductors to Have Better Growth Most people think that the growth rate of semiconductor industry will be pretty slow compared to other mature industries and it is not going back to double digits. Growth in transistor unit volume distinguishes the semiconductors from other industries. In a 10 year volume growth, automotive industry has a 0.1 percent CAGR, steel has 5.3 percent CAGR and computer 9.3 percent CAGR, the semiconductor industry has a 35 percent CAGR. Infact, inflation more than offsets the reduction in manufacturing efficiencies and so in most of the industries prices go up, but in semiconductors because it produces 35 percent more each year it continue to reduce the cost per unit. Reduced memory cost drives new applications and architectures. When new price points are hit, new applications emerge that drive volumes and revenues, create funding for R&D and VCs. In recent times, Industry is at a historic low in unit pricing for memory, this is the first time in the history that four generations of Dynamic RAM (DRAM) are simultaneously sold for under $1 and the cost of flash memory has been decreasing by 65 percent per year. “Reduced cost per transistor and other innovations will enable new applications, which will grow the semiconductor industry much faster than the other mature industries like chemical, steel and automotive,” says Rhines. Consolidation Around best-in-class Design Platform There is a perception that many companies have started moving to a single EDA vendor, because of the current economic crisis. The EDA industry is divided into 68 product application segments, with each being a $1 million market or greater. There are ‘big three’ EDA companies – Mentor Graphics, Cadence, Synopsys and there are small companies, while the big dominate the big segments, the small dominate the niche ones in the EDA industry. There around 500-1000 small EDA companies in the world that sell software, there are others who are service companies. “Every year about 50 new EDA companies are established, while every year about 10 EDA companies go out of business, and there are about 20 companies that are acquired by the big EDA companies,” points out Rhines. The largest supplier in each of the 68 EDA products segment averages more than 70 percent market share. This is a phenomenal concentration and a necessary concentration because it takes a lot of R&D resource to supply the growing needs and complexity of a product. “There is consolidation but it is around best-in-class design platforms as opposed to around top to bottom flows,” says Rhines. Containing Chip Designing Cost A widely accepted opinion is that rising design costs are making design unaffordable for all but the largest companies. There is slow growth in the number of electronic engineers produced and their productivity has increased significantly. Transistors produced per electronic engineer have increased nearly four-orders of magnitude in the last 25 years. The SOC (system-on-chip) design costs are forecasted to exceed $100 million within three years. Designing chips is getting cheaper but the embedded software is getting expensive, in fact in any design the ratio of software to hardware designers is currently 2:1. There is big opportunity for doing to embedded software what is done to hardware design. “Reuse existing software, use open standard to migrate software and minimize that effort, the industry is in the process of doing these,” says Rhines. When the market is moving towards more to software, the EDA industry also needs to move with it. The rising design cost will be contained in the future and not ascend fast, because of integrated EDA software development environment and other tools and capabilities that industry can provide that will add productive just as it is done in chip design. (Based on the keynote speech delivered by Walden .C. Rhines, Chairman and CEO of Mentor Graphics at the EDA Tech Forum 2009, India)