Landing on the Red Planet has moved from sci-fi books to reality. The Spirit and Opportunity rovers will now attempt to look around the planet through their electronic eyes and essay some explorations on soil, atmosphere, landscape and so on, controlled by a team of scientists sitting about 100 million miles away. Millions of chips will be put through their paces—on Earth and elsewhere—in man’s latest galactic sojourn.

Chips are getting to be everywhere—from spaceships to soup kettles. The demand for these blobs of technology engines range from security, RFID, wireless, consumer electronics and electrical appliances to complex enterprise networking solutions, space applications and so on. After the tumble of the 2001-02, chips are now seeing a resurgence. More good news for the industry as Standard & Poor’s (S&P) reported that shares of companies in its semiconductor group overall could appreciate between 20 percent and 25 percent over the next 12 months.
Key factors driving the growth, according to the a report from the firm’s equity research services, include surging demand from Asia, as outsourced manufacturing spurs prosperity in that region; improving corporate profits in the U.S., which are leading to increased IT investment; under-investment in semiconductor manufacturing capacity—which has led to high capacity utilization rates and pricing power; and high operating leverage at chipmakers, resulting from three years of cost reductions.
On a parallel note, the Semiconductor Industry Association (SIA) has released its annual forecast for 2003-2006, highlighting a strong growth forecast for 2004. The association projects 2004 revenues to increase by 19.4 percent to $194.6 billion.

“We are facing an inflection point in our industry where chip development costs are rapidly increasing with each new process node,” says John Daane, chairman, president and CEO of Altera Corp. “Now, more than ever, semiconductor manufacturers are forced to closely evaluate the return on investment of each chip produced. New opportunities lie in programmable architectures such as microprocessors, microcontrollers, DSPs and programmable logic, which can be leveraged across many customers and many markets.”
Of all the semiconductor regions, the Asia-Pacific market is seen to continue experiencing the strongest growth. It is forecast to grow 18.6 percent to $60.6 billion in 2003, 23.4 percent to $75.0 billion in 2004, and 8.2 percent to $81.5 billion in 2005. In 2006, Asia-Pacific is expected to grow by 8.2 percent to $88.2 billion. The figures look rosy, but chipmakers do face a number of challenges, however, including rapidly rising semiconductor design costs; the rise of consumer electronics, whose chips carry lower margins; and $2 billion to $4 billion price tags for new manufacturing facilities, S&P reports. The firm added that analog chipmakers, logic, foundries and large IDMs hold a competitive advantage in the current environment.

Security High
With demand in place and the low cost, effective solution available to meet it, the encryption IC, or security processor market is poised to perform better than most other chip markets over the next 5 years, reports In-Stat/MDR. Between the threat of a massive attack on the Internet from terrorist hacker groups and the growing need for secure online transactions, the need for Web security has never been greater. With recent improvements in their usability and the fact that they are a more cost-effective solution than using more expensive and power hungry general processors to run increasingly more complex security algorithms in software, security processors are in a perfect position to satisfy this need. As a result, this market is expected to grow from about $30 million in 2002 to over $280 million by 2007.

The end of 2007 will tie nearly a fifth of this market's end revenue to blade servers. While the high-end security processors have a slightly higher growth rate than the mid-range market, the middle segment will be responsible for just over half of the overall market by 2007. This is a function of the head start it has over faster devices in the beginning, and the steep price pressures on the low-speed devices as their roles get absorbed through integration.

Consumer Electronics: Bouts Ahead
Three giants—IBM, Toshiba and Sony—that were exploring collaborations in 2002 are now planning strategic assaults in the consumer market. In a recent C.Net report, john Spooner talks about the three companies’ collaboration on a future processor architecture, called Cell, that some analysts speculate will end up in the PlayStation 3. The Cell architecture is expected to be able to enhance the performance of peer-to-peer computing, and it will be based in part on the existing PowerPC architecture, analysts say. Although he declines to discuss specifics, Bijan Davari, vice president of semiconductor development at IBM Microelectronics, said Cell chips would be “optimized for high-speed video” and other Internet requirements.

At the CES in Las Vegas last month, Paul Otellini, President of the world’s largest chip maker Intel, revealed plans for an aggressive push beyond the PC into consumer electronics with new chips for big-screen high-definition televisions and an all-in-one home entertainment PC. “The lines between these two industries are blurring, but they are blurring at an increasing rate,” Otellini said. Earlier, Intel said it would invest $200 million in companies that are building “digital home” technologies intended to allow media to freely flow between devices around the home.

While Intel dominates the market for PC microprocessors, its latest initiatives target a new set of competitors: consumer electronics leaders such as the Netherlands’ Philips Electronics, which are unlikely to accept the chip giant’s entry without a fight. Liquid Crystal on Silicon, or LCoS, chips promise to make 50-inch high-definition TVs cost less than $1,800 by next year, Otellini said, while powerful 3 gigahertz processors will run the PC centers. So-called Entertainment PCs, he said, will come on the market later this year, priced around $799 or less. They are intended as a complete replacement for home entertainment centers, offering live TV tuning, video recording, DVD and music playback, photo display and even video gaming.

“It’s not created for the creation of content, it’s created for the consumption of content,” he said. The growth of wireless, mobile and digital technologies together with the shrinking of chips and circuitry have created the perfect environment in which to convert or conceive what Philips Semiconductors calls the “connected consumer.” Intel’s Centrino, says Sriram Viswanath, managing director at Intel Capital, has turned in profits in 9 months—an inflection in the industry dynamics.

Enterprise: Big Buyer Still
Defense, retail, and automotive are emerging to be potentially big consumers of high-end silicon. While the defense sector will demand more and more human-free products in the future, the retail sector is adopting new standards. Wal-Mart’s sweeping adoption of RFID is a driver for the tag market. After the Firestone disaster, automobile giants are tagging tyres. Not just that, on-board computing and in-car entertainment are businesses that demand smaller, cheaper and faster silicon.

As wireless emerges into adulthood, startups and incumbent giants alike compete for hard-to-attract IT dollars within the enterprise—in unwiring the enterprise and “empowering” the business.

This year has all the promises of a stunning semiconductor indices performance. Tools, fab, materials and applications are all aligning to make it happen. Watch this space.