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Semiconductor Market Trends

Richard Gordon
Monday, November 17, 2008
Richard Gordon
Historical Trends
From its inception in the 1950s through the mid 1990s, the semiconductor market grew at an average annual rate of between 15-20 percent. Driven by Moore’s Law new applications for semiconductors evolved as cost per function reduced, which fuelled demand for new types of electronic equipment.

Initially, the semiconductor industry was supported by government and military spending. By the 1970s, corporate spending on electronics was becoming more influential although it was the advent of the so-called “killer applications,” the personal computer (PC) in the early 1980s and the cell phone in the 1990s that really drove semiconductor market size and growth. Heavy investment by businesses in Information Technology (IT) was justified by the productivity gains that computing and communications electronics delivered and the period up to 1995 was hugely profitable for the semiconductor industry.

In the past decade, the corporate PC and cell phone markets have matured and are now replacement markets. Outside of emerging regional markets, sales of PCs and cell phones to new customers are driven by consumer spending, which means that the end market for semiconductors has become more price-sensitive and demand more elastic and this is causing a change in semiconductor market dynamics.

Market Dynamics
Despite its healthy long-term average growth rate through 1995, the semiconductor industry was plagued by market volatility. While demand for semiconductor units increased every year at a long term growth rate of about 10 percent, the nature of semiconductor manufacturing and its associated investment model meant that managing capital spending to match supply to the level of demand was difficult if not impossible. Furthermore, a highly competitive marketplace and attractive growth prospects meant that over-investment in “hot” markets was commonplace, which led to inevitable, periodic market corrections.

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