This is a continuation of my coverage of the fortunes of the global semiconductor industry. I would like to acknowledge and thank Mike Cowan, an independent semiconductor analyst and developer of the Cowan LRA model, who has provided me the latest numbers.
The WSTS posted May 2011′s HBR, Historical Billings Report, on its website on Tuesday, July 5th, 2011.
According to the WSTS’s HBR, May’s actual sales came in at $23.494 billion with the corresponding May 3MMA sales at $25.031 billion. It should be noted that two months experienced slight downward sales revisions from last month’s published HBR, namely March (down by $0.147 billion) and April (down by $0.112 billion), respectively.
The Cowan LRA model’s sales forecast estimates for May as published last month were $24.565 billion (actual) and $25.474 billion (3MMA), respectively. Thus, the model’s May MI (Momentum Indicator) came in at minus 4.4 percent.
This indicates (mathematically speaking) that the semiconductor industry’s actual May sales result was much lower than the model’s expectation by $1.071 billion and that, most probably, 2011′s sales growth will be trending downward for the rest of this year.
Plugging the latest actual sales number for May into the model yields the following updated sales and sales growths forecast estimates for 2011:
The key take-aways from comparing the latest versus previous month’s forecast results are highlighted below:
* 2011′s sales forecast estimate fell by $3.937 billion to $318.391 billion (from last month’s sales forecast estimate of $322.328 billion).
* Correspondingly, 2011′s sales growth forecast estimate dropped by 1.3 percentage points to 6.7 percent (from last month’s 8 percent sales growth forecast estimate).
* June 2011′s actual sales forecast expectation is $29.435 billion which corresponds to a June 3MMA sales estimate of $25.445 billion assuming no (or minor) sales revisions for either April or May’s previously published actual sales from last month.
Next month’s forecast update based upon June’s actual sales are expected to be available on or about Friday, Aug 5th, 2011.
This is a continuation of my coverage of the fortunes of the global semiconductor industry. I would like to acknowledge and thank Mike Cowan, an independent semiconductor analyst and developer of the Cowan LRA model, who has provided me the latest numbers.
May 2011′s “actual” global semiconductor sales is scheduled to be released by the WSTS, via its monthly HBR (Historical Billings Report), on or about Tuesday, July 5th.
In anticipatation of the upcoming May sales release by the WSTS, Cowan demonstrated an analysis capability of the Cowan LRA Model for forecasting worldwide semicon sales; namely, the ability to provide a “look ahead” scenario analysis for 2011′s global semicon sales forecast range as a function of next month’s (in this case May’s) “actual” global semiconductor sales estimate.
The detailed results of the “look ahead” analysis are summarized in the scenario analysis matrix provided in the table below. These results are also discussed in the subsequent paragraphs:
In order to demonstrate this “look ahead” forecast capability, an extended range in possible May 2011′s “actual” sales is selected a-priori; in this particular scenario analysis, a May 2011 sales range (from $23.065 billion to $26.065 billion, in increments of $0.25 billion, was chosen) as listed in the first column of the above table.
This estimated range in possible “actual” May sales numbers is “centered around” the projected May sales forecast estimate of $24.565 billion as gleamed from last month’s Cowan LRA Model run (based upon April’s published “actual” sales numbers). The corresponding May 3MMA sales forecast estimate is projected to be $25.474 billion (NOTE – assumes no, or minor. revisions in either March’s or April’s previously published “actual” sales numbers released last month by the WSTS) .
The overall year 2011 sales forecast estimate for each of the assumed May sales over the pre-selected range of ‘actual’ sales estimates is calculated by the model, and is shown in the second column of the table. The third column reveals the associated year-on-year sales growth estimates compared to year 2010′s actual sales result of $298.315 billion.
The fourth and fifth columns show the corresponding May 3MMA, three Month Moving Average, sales estimates and the corresponding yr-o-yr sales growths relative to May 2010′s 3MMA sales of $24.701 billion, respectively. Finally, the sixth column lists the model’s Momentum Indicator, MI, defined as the percentage delta between the actual May sales result and the previous month’s sales projection for May. Read more…
May 2010 global semicon update: Four quarters of sequential growth, yet still no one believes! Wake up, says Future Horizons
March’s total semiconductor sales came in at $26,533 billion, slightly above our February expectation, closing the quarter at $69,181 billion. This was up 2.8 percent over Q4-2009 and one of the strongest first quarter performances ever in what is normally a negative growth quarter. We have now had four straight quarters of industry growth, yet still no one believes in the strength of the recovery!
Of course, something unexpected can always go wrong but the industry fundamentals have never been better aligned. Just as 2001 ushered in the conditions for the so-called the perfect (semiconductor) storm, 2010 is now wallowing in the inverse effect. Surprisingly, few firms are tough. Most are too timid, too cautious or too scared. Welcome to the brave new world of semiconductor company ambivalence and life-threatening risk aversion. “Hello”.
Future Horizons presented its review and forecast for the global semiconductor market on the first day of their ongoing 19th International Electronics Forum (IEF) 2010 in Dresden, Germany, May 6-8. Our overall prediction was that the 2010 chip market would have a barnstorming year; only a disaster of the Lehmann Brothers scale could now derail the market.
The overall five-year forecast presented was:
This would take the industry to around $300 billion in 2010 with a CAGR of 11.8 percent between 2010-14. It would also signal a 180-degree reversal in the industry’s fortunes following its ‘zero growth’ 2000-09 lost decade of growth. Moreover, despite the apparent bullishness of these numbers, given the now unavoidable 2010-11 fab shortage, the growth upside for 2010-12 is still huge.
The real tragedy however of what ought to have been good news for the industry was: (a) still, no one believes in the numbers; and (b) it was entirely predictable.
We first presented this forecast in January 2009, at the high point of the industry’s economic and business uncertainty. The only change we have made in the last 17 months was to increased 2010’s growth number from 15 to 31 percent number. Whilst all other industry analysts, business leaders, trade associations and economists alike wrestled with what was happening, we alone never lost faith in the industry or what the underlying fundamentals were saying.
This cycle’s forecast was the easiest we have ever had to make. All we had to do for the IEF meeting was to adjust for the fact that the 2009 recovery was faster and steeper than even we had dared to predict. The bottom line? The industry fundamentals may often get distorted by events but they never lie, ignore them at your peril.
We were ridiculed for our optimism in January 2009 and throughout the year when we stuck to our guns. We never stopped believing in the numbers however and never subscribe to industry fashion, trend or sentiment, despite this sometime being out on a limb with industry consensus.
We are proud of the fact only we got this analysis right but equally sad that no one had the courage to listen. This was not forecast luck either; this was simply doing what we do best, making a considered analysis and then believing in what the forecast tells us.
Here are the excerpts from the Global Semiconductor Monthly Report, May 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons. There are a lot of charts associated with this report. Those interested to know more about this report should contact Future Horizons.
This will be followed by the update for June, and I am speaking with Malcolm Penn to find out more!
“At $14.085 billion, March’s IC sales were up 28.4 percent versus February, equivalent to plus 2.7 percent on a five-week month adjusted basis. Whilst this still puts the market down 31.2 percent versus March 2008, the momentum that started in January 2009 continues to steadily gain traction.
Overall, the ICs in Q1 were down just 13.4 percent in value, comprising a 19.6 percent fall in units offset by a whopping 7.8 percent gain in ASPs. At the total semiconductor level, sales came in at $17.271 billion, up 27.1 percent on February (1.7 percent on a 5-week month adjusted basis), slightly higher than our $17.019 billion April Report estimate.
Q1 was thus down only 15.7 percent on Q4, sizeably better than our 18.5 percent estimate. This is good news for industry… ‘ah but’ say the sceptics!
During our January 2009 International Forecast Seminar, we took the view that, from an economic recovery perspective, things would stabilise during the first half of the year, starting to gain traction by the end of 2009, given the dramatic economic stimuli since September 2008. The recovery would then accelerate quite fast in 2010-11, i.e. following a similar pattern as to what happened after the 2000 dot-com crash. There is every reason to believe this will still be the case.
Until recently, the big industry problem was uncertainty but there have been no horrible surprises now for several weeks and things do seem like we are bumping along the bottom. The global economy has stabilised; there have been no new gut-wrenching surprises and the ‘unknown unknowns’ in the economy have subsided. This means we are now left facing the ‘known unknowns’, which is clearly something that industry can adjust to and deal with.
Despite its severity, there are also many mitigating circumstances. At the personal level, this recession is quite like no other. For those without a job, or on short-time working, it is clearly bad news as no one is currently hiring. But, those with a job ironically have never been better off, with inflation, mortgage interest rates and repayments (the single biggest expense item on the personal expense budget) at rock bottom levels. This is very unlike the past recessions, which were accompanied by high inflation and cripplingly high interest rates.
Another factor is that no one really knows how much of the current GDP shrinkage (and for that matter the previous five-years above average growth) is (was) smoke and mirrors. With CDIs valued at 1.2x total world GDP in 2007 only to be written down to junk bond status the following year, the absolute GDP and growth rate numbers have been compromised. That makes it hard to judge what they mean from a top down perspective, more so when one considers the total electronics manufacturing industry’s contribution to world GDP is barely 3 percent.
Finally, even though cars, mobiles, PCs etc may fall in unit terms by ’15-30 percent’ this year, that still means ’70-85 percent of the market’ remains. With inventory levels everywhere in the value chain at all-time lows, we are currently back now building to demand from newly bought components, albeit some 20 percent lower than the 2008 highs.
At the chip level, the market is obviously driven by the economy but it also has its own drivers, especially capacity and ASP trends. Thus, whilst the existence of a link between the chip market and the economy is clear, mathematically the nature of this link is imprecise. Dislocations in growth dynamics are thus relatively frequent.
What then of our January 2009 quarterly growth pattern (Q1 -18 percent, Q2 -2 percent, Q3 +12 percentand Q4 +3 percent)? Clearly Q1, at -15.7 percent, was better than forecast which, if the rest of the growth pattern continues as planned, would rein in the full year market decline slightly from -28 to -25.3 percent, but still within the forecast margin of error. Q1 has thus reinforced, not altered, our January prognostications.
If Q1′s stronger momentum however carries through into Q2, Q2 would come in much stronger than our 2 percent decline, say to plus 2 percent instead. This would positively change our forecast dynamics with a further two percentage points improvement on the full year’s number, improving our forecast from -28 percent to -23.2 percent. Whilst we are not yet prepared to call for a formal forecast revision, the odds are in its favour and the downside forecast risks dispersed.
Clearly Q1 was the cyclical bottom; from here on out the growth trends will be up. Once the inventory purge is over, excess capacity will soon be absorbed with a corresponding strong recovery in utilisation rates. Given capex is currently at an 18-month all time low, with no near-term correction in prospect until late Q3-Q4 at the earliest, the industry will enter 2010 staring into a new net capacity famine.
We definitely will be revising our 2010 forecast up, from the current +15 percent to the mid-to high twenties.
The table C1 shows the quarterly semiconductor equipment sales trends for the period Q1-2008 through Q1-2009 inclusive. The total Q1-2009 equipment sales were $3,235 million, down 31.4 percent from Q4-2008, which in turn was down 28.1 percent from Q3-2008. This represents the biggest sequential falls in the history of the chip industry.Source: Future Horizons
Wafer processing equipment represented 76 percent of the total, just slightly higher than its 75 percent average. Total Q1-2009 investment represented only 7.3 percent of the quarterly semiconductor sales, although it must be remembered that an equipment sale in Q1-2009 will not produce incremental semiconductor sales until three quarters later, namely Q4-2009.
Q1-2009 wafer fab equipment sales were down a staggering 69.4 percent on Q1-2008, the fourth consecutive quarterly high double-digit drop, with further declines in the prospect. Capex levels are now running at levels not seen since the early 1990s when the overall chip market was one-third its current size.
As mentioned earlier, Q1-2009 was down 31.4 percent versus Q4-2008, on top of the three previous quarterly declines of 28.1 (Q4 vs Q3), 16.3 (Q3 vs Q2) and 25.8 (Q2 vs Q1) percent respectively. It should not be forgotten that these cutbacks were not triggered by the current chip market recession; the first two quarterly drops, namely Q2 and Q3-2008, took place against a backdrop of strong IC unit growth, i.e., well before the Q4-2008 chip market collapsed.
The cutbacks were a clear intent to engineer tight capacity, a strategy that would by now have bitten home were it not for the cruel interruption on the Q4-2008 market collapse. We have never before seen such an extensive cut back prior to a collapse; ironically this will help the recovery process, albeit for the wrong reasons. It will also underpin the underlying strategy — post recession IC capacity is going to be tighter than tight.
We also tracked the total semiconductor equipment sales by month since January 1988, both in absolute value and as a percent of semiconductor sales. One significant feature that can be seen from these trends is that the absolute value of the total semiconductor equipment sales has been significantly lower than the previous 1999-2000 investment peak, despite the fact the total semiconductor market has expanded in size.
During this same time period, the investment trend relative to the size of the total semiconductor market has also been trending well below its long-term 16.75 percent average, despite this being a period of heavy 300mm conversion.
The corresponding data for the Wafer Processing equipment sector, shows an increasing trend as a percent of semiconductor sales. This trend, however, is not a sign of excess investment, rather that the wafer processing portion is gaining overall market share, currently at around 75 percent of the total equipment spend, up from around 60 percent in the late 1980s.
We also tracked the total capex spent as a percent of semiconductor revenues on an annual basis since 1990-2008, and data but for the total semiconductor equipment spend. We also tracked the relative relationship between the wafer processing and total semiconductor spends.
These show that a higher proportion of revenues are being spent on the wafer processing sector, a trend that we believe is likely to continue.
We believe that the current levels of capex expenditure are unprecedentedly low and cannot be wholly accounted for improvements in productivity and factory loading. Even if they are, these gains are one-off improvements; once they have been realised there is no more gain in prospect and expenditure levels will return to ‘normal’ trends.
We tracked the wafer processing equipment spend versus the corresponding increase in capacity on a quarterly basis since Q1-1999 but with the capacity increase delayed by three quarters.
Once the three-quarter slippage in introduced into the equation, the overlay of the two curves, whilst not perfect, is a very good fit. In short, it takes three quarters for increases in wafer processing spend to translate into new capacity. This is the time it takes to hook up and calibrate the kit and make it volume production ready. Add to this an additional one-quarter delay through wafer fab and assembly process, the net result is a one year delay from wafer processing spend to incrementally more IC shipments out.
Adding in a further one-quarter lead-time for equipment delivery, results in a typically 15 month delay for an existing clean room structure from wafer processing investment decision to increased unit sales, one year longer still if a new building is required.
These long lead-times, however, have a positive side in that one has excellent visibility three quarters out into how much additional capacity is due to come on stream, just by analysing the front-end capex spend numbers. Once the frontend
capex is committed, the addition capacity is inevitable, needed or not, the difference being determined by the capacity utilisation number.
One is thus making an investment decision based on a unit demand forecast 12 months down the road, which would not be so problematic were demand more predictable.
As can be seen, however, from the unit sales charts in the Market Summary section of this report, IC unit demand fluctuates violently from its underlying long-term ten percent per year annual growth rate on a month-by-month basis, quarter-by-quarter basis, not withstanding the inevitable — and unavoidable — routing inventory adjustments.
The biggest single problem with semiconductor capex is thus both the long time delay from investment decision and additional IC units out and the non-linearity of the month-by-month unit demand. It is this mismatch that gives rise to the investment uncertainty. Getting the investment timing right, however, is not an exact science; there are bound to be ongoing capacity mismatches within this overall favourable trend.
Entering 2009, the current new capacity investment is trending well below the long-term trend, and is projected to slow even more so in 2009 as the economic recession bites home. This means over-investment is not going to accentuate the current industry downturn, as has so often happened before.
This time it seems investment has been deliberately slowed in order to improve the return on capital employed. The seeds have also been sown for the next market shortage in 2010-11. Foundry wafer prices will rise; dust down the ‘makebuy’ Excel spreadsheets … the ‘fablite’/IDM debate dynamics has yet to run its course.”
I recall editing an article of this name during my days at DiSyCom, way back in late 1994. Those were the early days of cellular/mobile telephony in India. At a seminar on mobility at the Taj Palace in New Delhi in early 1995, I had the first-hand experience to learn what roaming was all about, thanks to a nice gentleman from the ITU.
Today, 13 years down the road, roaming is hardly the subject to discuss. People take it for granted that if they are carrying a mobile phone, they MUST be roaming. Its also one of the safest bets for operators to make money.
I recall, in December 2002, in Hong Kong, some colleagues from India were unable to call home as they weren’t on roaming, and I had to lend them my phone to call. On the contrary, I was once stuck in Munich as I wasn’t on roaming and couldn’t call, and had to seek help from a ‘friend’ at the airport.
Of course, I’ve noticed in places across the Asia Pacific, such as Hong Kong, China, Taiwan and Singapore, that people buy local SIM cards in order to save on roaming costs. Even I’ve done the same on several occasions.
Today, we have come a long, long way as far as mobility is concerned. Soon, video roaming or the ability to make video calls, while roaming, would be upon us. I wonder how people would take to that experience! Also, it’d be interesting to see how the operators charge consumers on video calls and especially, video roaming.
In 2013, the global semiconductor industry had touched $306 billion or so. Sales had doubled from $100 billion to $200 billion in six years — from 1994 to 2000. It was enterprise sales that was driving this. It has taken 14 years to move past $300 billion, said Anil Gupta, managing director, Applied Micro Circuits India Pvt Ltd, at the UVM 1.2 day.
This time, consumption of semiconductors is not only around enterprise, but social networks as well. Out of the $306 billion, logic was approximately $86 billion, memory was $67 billion, and micro was $58 billion. We, as consumers, are starting to play a huge role.
However, the number of large players seem to be shrinking. Mid-size firms, like Applied Micro, are said to be struggling. Technology is playing an interesting role. There is a very significant investment in FinFETs. It may only get difficult for all of us. Irrespective, all of this is a huge barrier to the mid- to small-companies. Acquisitions are probably the only route, unless you are in software.
In India, we have been worried for a while, whether the situation will be a passing phase. We definitely will have a role to play. From an expertise perspective, thanks to our background, we have been a poor nation. For us, the job is the primary goal. We need to think: how do we deliver value? We have to try and keep creating value for as long as possible.
As more and more devices actually happen, many other things are also happening. An example for devices is power. We still have a fair number of years ahead where there will be opportunities to deliver value.
What’s happening between hardware and software? The latter is in demand. Clearly, there is a trend to make the hardware a commodity. However, hardware s not going away! Therefore, the opportunity for us to deliver value is huge.
Taking the tools to make something, is critical. UVM tools are critical. But, somewhere along the way, we seem to stop at that. We definitely need to add value. UVM’s aim is to make things re-usable.
Don’t loose your focus while doing verification. Think about the block, the subsystem and the top. You need to and will discover and realize how valuable it is to find a bug, before the tape out of the chip.
I recently met Sam Fuller, CTO, Analog Devices, and had an interesting conversation. First, I asked him about the state of the global semicon industry in 2013.
Industry in 2013
He said: “Due to the uncertainties in the global economy in the last couple of years, the state of the global semiconductor industry has been quite modest growth. Because of the modest growth, there has been a buildup in demand. As the global economies begin to be more robust going forward, we expect to see more growth.”
Industry in 2014?
How does Analog Devices see the industry going forward in 2014? What are the five key trends?
He added: “I would talk about the trends more from an eco-system and applications perspective. Increased capability on a single chip: Given all the advances to Moore’s law, the capability of a chip has increased considerably in all dimensions and not just performance, be it the horsepower we see in today’s smartphones or the miniaturization and power consumption of wearable gadgets that were on show this year at CES.
“In Analog Devices’ case, as we are focused on high performance signal processing, we can put more of the entire signal chain on a single die. For our customers, the challenge is to provide their customers a more capable product which means a more complex product, but with a simpler interface.
“A classic example is our AD9361 chip, which is a single chip wideband radio transceiver for Software Defined Radio (SDR). It is a very capable ASSP (Application Specific Standard Products) as well as RF front end with a wide operating frequency of 70 MHz to 6 GHz.
“This chip, coupled with an all-purpose FPGA, can build a very flexible SDR operating across different radio protocols, wide frequency range and bandwidth requirements all controlled via software configuration. It finds a number of applications in wireless communication infrastructure, small cell Base stations as well as a whole range of custom radios in the industrial and aerospace businesses.”
Now, let’s see the trends for 2014!
More collaboration with customers: There is a greater emphasis on understanding customers’ end applications to provide a complete signal chain, all in a System on a Chip (SoC) or a System in a package (SiP). The relationship with our customers is changing as we move more towards ASSPs focused with few lead customers for target markets and target applications. While this has already been ongoing in the consumer industry with PCs and laptops, customers in other vertical markets like healthcare, automotive and industrial are and will collaborate more with semiconductor companies like Analog Devices to innovate at a solutions level.
More complete products: We have evolved from delivering just the silicon at a component level to delivering more complete products with more advanced packaging for various 3D chips or multi-die within a package. Our solutions now have typically much more software that makes it easier to configure or program the chips. It is a solution that is a combination of more advanced silicon, advanced packaging and more appropriate software.
With providing the complete solution, the products are more application specific and hence, the need for more collaboration with customers. For example, there may be one focused on Software Defined Radio, one for motor control, and one for vital signs monitoring for consumer health that we have launched recently.
We need it to be generic enough that multiple customers can use it, but it needs to be as tailored as possible to the customers’ needs for specific market segments. While because of the volume and standardization, availability of complete reference designs in the consumer world has been the norm, other market segments are demanding more complete products not-withstanding the huge variation in protocols and applications.
Truly global industry: The semiconductor and electronics industry has become truly global, so multiple design sites around the globe collaborate to create products. For example for Analog Devices, one of our premier design sites is our Bangalore product design center where we quite literally developed our most complex and capable chips. At the same time our customers are also global.
We see large multinational companies like GE, Honeywell, Cisco, Juniper, ABB, Schneider and many of our top strategic customers globally doing substantial system design work in Bangalore along with a multitude of India design houses. Our fastest growing region is in Asia, but we have substantial engagement with customers in North America and Europe. And our competition is also global, which means that the industry is ever moving faster as the competition is global.
Smarter design tools: The final trend worth talking about is the need for smarter design tools. As our products and our customers’ products become more complex and capable, there have to be rapidly developing design tools, for us to design them.
This cannot be done by brute force but by designing smarter and better tools. There is a lot of innovation that goes on in developing better tool suites. There is also ever more capable software that caters to a market moving from 100s of transistors to literally billions of transistors for an application.
Here is the concluding part of my conversation with Synopsys’ Rich Goldman on the global semiconductor industry.
Global semicon in sub 20nm era
How is the global semicon industry performing after entering the sub 20nm era? Rich Goldman, VP, corporate marketing and strategic alliances, Synopsys, said that driving the fastest pace of change in the history of mankind is not for the faint of heart. Keeping up with Moore’s Law has always required significant investment and ingenuity.
“The sub-20nm era brings additional challenges in device structures (namely FinFETs), materials and methodologies. As costs rise, a dwindling number of semiconductor companies can afford to build fabs at the leading edge. Those thriving include foundries, which spread capital expenses over the revenue from many customers, and fabless companies, which leverage foundries’ capital investment rather than risking their own. Thriving, leading-edge IDMs are now the exception.
“Semiconductor companies focused on mobile and the Internet of Things are also thriving as their market quickly expands. Semiconductor companies who dominate their space in such segments as automotive, mil/aero and medical are also doing quite well, while non-leaders find rough waters.”
Performance of FinFETs
Have FinFETs gone to below 20nm? Also, are those looking for power reduction now benefiting?
He added that 20nm was a pivotal point in advanced process development. The 20nm process node’s new set of challenges, including double patterning and very leaky transistors due to short channel effects, negated the benefits of transistor scaling.
To further complicate matters, the migration from 28nm to 20nm lacked the performance and area gains seen with prior generations, making it economically questionable. While planar FET may be nearing the end of its scalable lifespan at 20nm, FinFETs provide a viable alternative for advanced processes at emerging nodes.
The industry’s experience with 20nm paved the way for an easier FinFET transition. FinFET processes are in production today, and many IC design companies are rapidly moving to manufacture their devices on the emerging 16nm and 14nm FinFET-based process geometries due to the compelling power and performance benefits. Numerous test chips have taped out, and results are coming in.
“FinFET is delivering on its promise of power reduction. With 20nm planar FET technologies, leakage current can flow across the channel between the source and the drain, making it very difficult to completely turn the transistor off. FinFETs provide better channel control, allowing very little current to leak when the device is in the “off” state. This enables the use of lower threshold voltages, resulting in better power and performance. FinFET devices also operate at a lower nominal voltage supply, significantly improving dynamic power.”