In our last blog post, we discussed that predicted growth for the world-wide semiconductor materials market would top 4.5% globally. In this post, we’ll drill down to the North American region, and rather than looking at the materials growth rate, this time we focus on the semiconductor manufacturers’ growth rate. According to an Ibis Consulting, growth will continue at 1.7% from 2015 to 2020 and will be driven by new forces other than micro-processors, the dominant force for the past twenty years. The new engine of growth will come from micro-controllers and the automotive/consumer products industry that needs them to power the automobiles, washers, dryers, and even the toasters that you and I buy.
Currently the market size for the semiconductor and circuit manufacturing industry within the United States is estimated to be $56.9B. For the first 5 years of the current decade, it has declinedat a rate of -6.9%. Although Ibis predicts that there will be an uptick of growth to 1.7% for the rest of the decade. The two titans of manufacturing within United States are Intel and Samsung, each holding 17.9% and 11.1% of the total market, respectively. The dominance of these titans can be inferred from a breakdown of the market as shown in the following graph:
Given that Intel is one of the world’s largest manufacturers of micro-processors, and most of the company’s manufacturing is completed in the United States, it is clear to see why micro-processors play such a dominant role in American manufacturing. In fact, although manufacturing is commonly perceived as almost totally having moved overseas, semiconductors as a whole are one of the top US export businesses, and the sector is thought to employ (according to the Semiconductor Industry Association or SIA) directly and indirectly as many as 250,000 Americans, which although quite a drop from its sunny heights is still a significant figure.
That being said though, one note of caution from IBIS Consulting: semiconductor manufacturers in the US are anticipated to drop from 747 to 708 by 2020. So, then, who will be the winners and who the losers?
To answer that question properly, we need to take a slight detour and first define where the parts just discussed are going; which industries are buying the products in question? To help partially answer this question, take a look at this graph:
The primary semiconductor slice going into the “exports” niche are primarily the micro-processors produced by Intel, and to a lesser degree its competitors. As the desktop computing (i.e. PCs) and server world swing up and down, so swings Intel and its influence over the exports market. Another key variable for the value of exports is the strength of the US dollar. These two factors are forecasted by Ibis, along with increasing strength from overseas competitors, to trigger a decline in semiconductor exports through 2020.
The same kind of problem afflicts the “computer manufacturing mfgr. and data processing” markets. The dominant role of the desktop computing market is slowly being eroded by the continual expansion of portable computing. This new type of computing tool that once suffered in terms of weak computing power and excessive heating issues no longer suffers as new chips have largely solved these problems. Thus, computer manufacturers and data processing manufacturers are losing market share to the new world of portable computing and their devices: smartphones and tablet computers.
This increasing strength in the portable computing comes at the direct expense of the laptop and desktop PC markets. There is a kind of cruel irony here, as these same PC computers once rang a kind of death knell for the large mainframe computers that preceded them in the late 20th century. Another important factor in the growth of the “communication equipment manufacturing” market niche is the increasing importance of “power-efficient” computing chips and of graphic processing chips – both being in high demand by the smartphone and gaming industries. Thus, the changes that drove the mainframes and fostered the growth of lap top computing (i.e. innovation in technology) is now slowly causing the death of the laptop computing market: faster, cooler, more energy efficient, and most importantly smaller chips are now fostering the growth of portable computing.
But there is another kind of innovation, and this one is in the area of end use application. This appears in the other group where considerable strength is anticipated: automotive, appliance and consumer electronics market niche. These markets require simpler chips; chips IC’s capable of doing a smaller number of tasks than the larger, more expensive micro-processors. They are collectively referred to as micro-controllers. These chips are embedded systems within many modern household items such as washers, dryers, refrigerators, and even toasters and irons. It is estimated that the average American household contains as many as 40 micro-controllers but only 4 micro-processors (and/or CPUs; i.e the “brains” for a pc or server). To be sure, the CPUs are pricier, but the larger volume of micro-controllers is really beginning to play a bigger role in the total market spend rate.
One last part of the market that is anticipated to grow is the market that utilizes wide band gap (WBG) substrates. These substrates include gallium arsenide (GaAs) and gallium nitride (GaN) to name but two. These substrates can operate at higher temperatures, higher voltages, and higher frequencies than silicon-based chips. Such characteristics are a key feature in many communication devices. They can also emit light and thus play a critical role in the manufacture of LED lighting. The big advantage to LED lighting is the lower power requirement, and as a result smaller energy footprint of such lighting.
Once upon a time, the world of the main frame computers dominated the demand for chips; as newer, more powerful chips were invented, the giant mainframes gave way to the smaller, more cost effective desktop computer, then to the laptop, and finally to smartphones and tablet computers. And now another, quieter revolution in the market place is taking place, this one driven in part by a world now demanding devices that are more caring of the world in which we live and in part by the new world of “Internet of Things” (IoT); a world seemingly masterminded by your least complicated home appliances.
Thus do worlds change as a function of innovation, or to paraphrase Daft Punk (and more recently Jimmy Fallon): smarter, faster, cooler!