By Ravi Agarwal, Senior Vice President and Regional Manager, Sales and Marketing Operations, NXP Semiconductors, Asia Pacific
This time last year, the industry had positive expectations about 2007 – but in reality it was worse than we hoped. The Semiconductor Industry Association (SIA) significantly revised its growth forecast from 10 percent to 2 percent half way through the year and currently forecasts 3% growth in 2007. While volume has been solid, price erosion has led to a mediocre year. You can see from the short order books that customers are leaving buying commitments to the last minute. When you look at fab utilization, we see this improving, especially in the second half of the year. So there are some signs that 2008 might see the industry picking up.
So what does 2008 hold? Of course it is not possible to talk of one homogenous semiconductor market, rather a range of different markets serving different sectors:
With ICs in products going into home environments, we still see the continued shift from analog to digital TV systems. We expect the Olympics will accelerate this transition, rather than increase the overall demand. Perhaps the 46 percent of chips traditionally sold in the first half of the year will rise to 48 percent. This might lead to increased chips sales in the first half as CE companies prepare for end demand in September. We also expect to see the continued development of new IP TV technologies that enable pictures to be shared around the home and across multiple devices.
In the ever important cell phone market, NXP expects solid market revenue and volume growth, with the low to high end products taking off and the increasing importance of navigation systems in cell phones providing more location based services. Integration of this technology into existing systems solutions and single chip solutions will make such services become more appealing from a price and technology perspective. In terms of user interface, the launch of the iPhone has moved the goalposts. OEMs are grappling with improving the user experience of high end phones, particularly with respect to browsing. They want to get the ‘near desktop experience’ on your phone.
Automotive technologies will continue their long term growth, with the continued adoption of home-based solutions into car entertainment systems. As well as this, high speed in-vehicle networks such as FlexRay will enable even more sophisticated technology to be used in the car. The recent DARPA driverless car competition shows where technology is headed in this sector.
In the identification arena, 2007 has been a plateau year, with a slower adoption of gear shifting technologies like NFC than many had predicted. This is not uncommon in new markets but over the long term we are very confident that the market for ID chips - which improve transport infrastructures, enable the e-wallet and allow for efficient monitoring of goods and animals—will be substantial.
On a more general level, we continue to see many people taking advantage of their digital cameras and, subsequently, increasing their storage needs. While this is extremely price competitive, there is also a desire among consumers to manipulate and manage their images. Of course, most of this will be within a PC environment as consumer devices have limited power for such advanced post processing. However, there is room here for innovation and creativity. At NXP, we have technology demonstrations using NFC to allow people to send and share images between digital photo frames without any need for a PC. Such simple to use consumer applications show that there is still potential to take advantage of the boom in digital imaging, outside of the capture device itself and the PC environment.
Looking now at the technology level, cost pressures in consumer electronics and mobile phone areas will accelerate the move to advanced CMOS. ASML’s immersion technology has come out of the blue sky to offer a relatively smooth transition from 90nm to 65nm and 45nm nodes. This will help silicon manufacturers jump to smaller nodes faster than in the past and moves to 65nm and 45nm are likely to accelerate throughout the year.
Advanced packaging will play a bigger role in 2008, as it allows for even smaller footprints, especially important in memory sectors.
At a systems level, the move to multi core architectures has been well accepted and will become more important. It is interesting to see the cell architecture of IBM in the next generation PlayStation devices—and we are likely to see more multi core applications as interconnect technologies continue to advance through 2008.
Software will continue to impact our traditionally hardware oriented industry. Already we have seen important milestones on the road toward full software defined radio and we can expect more in 2008. The handset market, with its inherent need for multiple radio systems, will be one of the first environments where we see the impact of SDR technologies, but the impact is also likely to be seen in automotive environments. The car lasts for three of four generations of entertainment technologies and, consequently, technology solutions will be based upon connectivity with handheld devices, rather than integration into the car itself. In this instance, using software to update rather than replace chips has clear benefits.
Environmental concerns are of obvious salience and are pushing device manufacturers to look to component suppliers for technology that reduces the carbon footprint of the products they sell. It is easy to see how very visible things like stand-by time on TVs will be issues that capture the attention of consumers.
From a structural point of view we are likely to see change. Our industry has intrinsically been dispersed, with the fabless model reducing barriers to entry and many smaller companies developing ground breaking technology. This fragmentation is unlikely to be sustained. To reach the scale necessary to bring innovation to market, companies will need to integrate their technologies into a single chip or System on Chip environment. They will need to integrate silicon into a software stack, develop applications and form new partnerships. This is beyond the scope of the inventors.
But it would be wrong for me to suggest that this consolidation pressure will always see interesting smaller players getting incorporated into larger IDMs. There are likely to be more examples of a co-operation between IDMs and smaller fabless players out-innovating the big IDMs. How successfully the management teams on both sides handle this dynamic will define their future. Enterprising companies may find new partnerships and business models to address these issues. What is clear is that these management challenges are as tough as the technology ones that were faced when these companies were established. I am confident that the industry will rise to these challenges but it will certainly be a dynamic few years as the industry adjusts to new commercial and technical realities.
Finally, any overview of our industry cannot ignore the question of Asia. Some Western companies see the East as a threat to be treated with trepidation. In our view they are wrong. Our experience is that engagement pays off. It is important to look deeper into Asia to see the different aspects of this complex situation. Chinese companies are aggressive and entrepreneurial; they have a strong passion for winning and a sense of national pride underpins this zeal. Meanwhile, in India, the approach is more methodical, perhaps lending itself more to software development. But both markets offer huge current and future potential for consumer sales. It is important, then, to have development teams and partnerships in place locally to ensure that the innovation here is the kind that will be popular to local people now and in the years to come.
For the West, this means that more than ever it is necessary to lead the development of innovation and create new applications. The North American and Western European markets will continue to drive many technologies and markets. Semiconductor technologies for established markets like mobile phones and cars, as well as some newer areas such as identification and IP TV, will be led by the West.
Overall, I am excited about what 2008 will bring. The semiconductor industry’s ability to innovate and transform itself in the harsh conditions it faces never ceases to amaze me. There are numerous challenges ahead, and many tough issues to overcome. But there are equally as many opportunities to engage in and exciting technologies to develop to ensure we all remain prosperous.
