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State of global semicon industry: Hanns Windele, Mentor

April 16, 2009

During his recent trip to India, Hanns Windele, VP Europe and India, Mentor Graphics, took time off to meet key leaders from the Indian semiconductor industry over a session organized by the India Semiconductor Association (Windele is seen here admiring a memento presented by the ISA). He presented his observations of the global semiconductor industry.

According to him, the electronics industry is having a roller coaster ride today. “In the past, it was the same for everyone. Today, it is different! Those who have niche products are doing better than others. The economic crisis is accelerating the downturn in the semiconductor industry,” he added. Windele apprised the audience that the IC unit shipments had fallen 15 percent in Q408 (YoY).

Windele touched upon the various forecasts presented by various analysts (see chart). The common thing has been — all analysts have forecasted negative growth. The one key stand out has been Future Horizons, which otherwise remains optimistic, but this time forecast a deep negative growth in the industry.

Is the semicon industry really consolidating?
Given the downturn, is the global semiconductor industry really consolidating, as it should? Windele examined some significant revenue and rankings in an attempt to unravel this case. So, do the big keep getting bigger?

As per the semiconductor concentration of revenue, the No. 1 player has had less share in 2007 than in 1972. Applying the same yardstick with the top five companies, they too have had less share in 2007 than they have in 1972! Extending this to the top 10 companies indicated a similar picture!

This goes on to indicate that the global semiconductor industry has actually been “deconsolidating’ since the 1960s! Windele said that between 1965-72, 29 companies entered the market and captured share from the big companies.

Each decade seems to bring in more change. Also, new product families bring new opportunities. Consequently, leadership seems to be changing regularly as well. For instance, 2008 brought the first fabless company — Qualcomm — into the top 10!

Also, new fab-lite strategies are working as well, with companies such as Texas Instruments (TI), STMicroelectronics, Renesas, and Sony among the top 10 as per the H1-08 list.

Based on these assessments, Windele said that few companies have managed to stay on the top for more than three decades. The top 10 seems to be changing every decade, he added. The global semiconductor industry has definitely NOT been consolidating. The top fabs, however, have definitely been consolidating, but not the fabless! “You need to be with the right product at the right time at the right place, otherwise you’d disappear,” he cautioned.

Why hasn’t consolidation happened?
It would be interesting to note why the global semiconductor industry hasn’t been consolidating (yet)! According to Windele, this could be due to:

* Unlike trends in steel, chemicals and automobiles, etc., the electronics industry achieves a reduction in cost per transistor of about 35 percent per year, every year.
* This change enables totally new applications addressing totally new markets.
* These new applications and markets are driven by innovators that are frequently new entrants into the electronics industry.

Opportunities for change
Once the EDA market stabilizes, would there be opportunities for change? There should be plenty of opportunities!

The place and route market has definitely not been growing. Rather, it has been a flat market over the past several years. Nevertheless, new EDA startups lead each new generation of place and route technology. According to Windele, there will be another new routing tool coming in once the industry enters the 45nm/32nm space.

Part II of this post continues in the next blog post.

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