The semiconductor industry’s recovery is underway. After floating many predictions of 30 percent declines expected for the industry in 2009, the actual fall from 2008 to 2009 is expected to be about 11-13 percent. In addition, the burgeoning recovery in the last two quarters appears to have full steam behind it. This recovery appears to be largely driven by the rise of new nanometer mixed-signal application-specific standard products (ASSPs) targeted at new consumer, mobile computer, and networking market segments. These mixed-signal ASSPs have a significant number of analog and radio frequency (RF) functions that push the limits of performance, power, area, and efficiency. In fact, the analog, mixed-signal, and RF (A/MS/RF) content of semiconductors is at the center of the current semiconductor industry’s recovery and it is growing faster than anytime in history.
The Recovery Brings a New Landscape
The semiconductor industry is poised to deliver strong growth over the next five-year period and this growth will leave behind tremendous changes in its wake, defining a new industry landscape. iSuppli’s latest forecasts for industry growth predict strong double-digit growth through the 2010-2014 period. The fuel for this growth, however, is coming from a very different source than what fueled the last semiconductor boom. Following the great recession of 2008, global share of consumption is expected to see dramatic changes over the next decade. As highlighted in Figure 1, approximately 40 percent of the current world population is located in India, China, and Indonesia and they account for approximately 10 percent of the nominal GDP and 12 percent of global share of consumption. According to the World Bank, over the next five years, consumption in these countries is expected to rise to approximately 26 percent of global share of consumption, driven by the rapid growth of personal income (and therefore, a middle class) accompanying their GDP growth. Whereas the absolute per capita income levels will still be below that of the United States or larger EU countries, the population sizes alone create large markets that are already driving the new face of the semiconductor industry.
New End Market Characteristics
The large markets by population create new markets for both existing products as well as new products. Specifically, these large markets are driving new product definition processes for the OEMs building products that contain electronic subsystems. While the markets are large (and hence attractive for semiconductor suppliers), the combination of very high volumes and “new” middle-class per-capita income levels dictate consumer products that are characterized by different feature sets and dramatically lower final-product pricing, resulting in tremendous pressures material cost of these products. As a result, major initiatives are underway to service these “new middle class” markets in more than eighty percent of the consumer electronics, computer, mobile phone, and automotive companies in the world. Companies will have to adjust to retail purchasing cycles that are based on lunar calendar festivals rather than Christmas. Another significant change is the choice of technology, where products such as flat-panel TVs, notebook computers, and mobile phones are being made with semiconductors in nanometer geometries in order to be able to offer attractive margins at significantly lower end-product prices.
The Changing Face of Semiconductors
The semiconductor market is poised to ramp sharply, with revenue growth expected to come in between 19-25 percent each year from 2010 to 2014. In order to meet the challenges of developing electronic products for new markets, companies will have to deal with three dramatic shifts taking place in the semiconductor industry.
First, the semiconductors used in products that define the digital experience today require extraordinary development effort. These chips push the limits in functionality, portability, and processing power. To the cost and functionality challenges of these products, companies developing semiconductor platforms for these new markets are aggressively moving to smaller deep nanometer geometries at 90nm (nm=nanometer) and below. As illustrated in Figure 2, leading market research firm iSuppli predicts that, over the next five years, the percentage of new chip designs built in technologies 90nm or below is expected to grow from 27 percent to almost 75 percent. Already, designs are ramping to volume on 40nm and 32nm. More important is to understand the driver behind this. The percentage of semiconductor revenues expected to come from these application-specific semiconductors built at 90nm and below is expected to grow from 38 percent to over 80 percent.
The second key shift is the dramatic rise in the amount of analog and radio frequency (RF) processing found inside these products. By the end of this decade, it is estimated that over 80 percent of all the silicon (by volume) shipped in the world will have at least 20 percent of silicon area dedicated to analog and RF functions — from circuits to move data between chips, wirelessly transmit and receive data, and convert signals into the digital world, to image sensors, gyroscopes, and electro-mechanical and electro-bio circuits. It is ironic that analog/RF functionality is becoming so fundamental to the success in new ‘digital era’ end-markets. Semiconductor companies today are re-inventing themselves around having both digital and analog capabilities, expertise, and intellectual property. Today, at least twelve of the world’s top 20 semiconductor companies have already put into place re-tooling programs to address the challenges of designing and ramping production of these nanometer integrated circuits rich in analog/mixed-signal/RF content.
Finally, the sheer amount of R&D investment required to develop platforms for high-volume vertical markets is creating an environment where only the top 3-4 semiconductor revenue leaders serving a vertical industry can afford the sustained levels of investment to move to the deep nanometer technology nodes. Thus, severe consolidation is to be expected - and the mixed-signal semiconductor market will separate into traditional catalog semiconductor suppliers and application-specific standard-product (ASSP) suppliers. Furthermore, the pendulum is expected to swing back to vertical integration, and this can be expected to accelerate in some markets where proprietary advantages tend to dominate (for example, Apple and Oracle’s recent moves).
Mixed-Signal Leads the Way
With respect to the recovery currently underway in the semiconductor industry, a recent article in a leading electronics publication trumpeted, “Analog leads the way.” Although past expectations of the demise of analog in the “digital” age were substantially overblown, the digital revolution has been notable in reshaping the nature of the analog/RF market, and especially so in the nanometer era. Virtually all of the highest volume or highest revenue end products involve substantial signal interface, transmission, conditioning, conversion, and power management functions- all analog/RF functions! The growth of digital consumer equipment has driven the volume growth of mixed-signal (i.e. analog + digital) semiconductors for targeted applications.
Three of the faster growing electronic product sectors in 2008 were digital mobile handsets, with a 21 percent unit growth rate, digital TVs, with a 93 percent unit growth rate, and digital media players, with a 63 percent growth rate. Moreover, while all three of these products make use of digital ICs, they make far more extensive use of analog, RF, and mixed signal ICs in substantial volume. However, as these designs move to nanometer technologies to reduce costs, big challenges in integration need to be addressed- analog and digital fundamentally don’t mix well. Among the biggest issues (and opportunities) are problems around complexity, noise, interference, variability, and manufacturability. Analog is now being reshaped to live cheaply in a digital world.
Big Challenges and Changes Lie Ahead
What should we make of all of this? Prepare for a brave new world in the semiconductor industry, a world marked by accelerating consolidation, new emerging markets, a dramatic shift in where the majority of semiconductors are consumed, and product segment winners known by the strength of their mixed-signal semiconductors. Very soon, we should expect to see that most of the world’s electronics will be purchased in the weeks preceding Chinese New Year, Eid, and Diwali. And it will be analog rising in a digital world.
The author is CEO, Berkeley Design Automation