Semiconductor Industry Changes In 10 Years

The semiconductor industry has become inflated with hundreds of vendors competing in a crowded marketplace, however, within 10 years, 40 percent of today’s semiconductor vendors are likely to leave the industry, according to Gartner, Inc.

Gartner analysts today identified five megatrends that will lead to significant changes in the industry during Gartner Dataquest Semiconductor Industry Summit, which will run through tomorrow at The Fairmont San Francisco.

These megatrends include increasing device integration (Moore’s Law), the increasing scale and size of manufacturing, the shift from business to consumer markets, the increasing role of service providers, and new and disruptive technologies.

Increasing device integration is the first and most fundamental of the megatrends. This gives tremendous benefits in terms of increased chip speed, lower power dissipation, greater functionality per chip, lower system cost and physically smaller-end equipment.

“Increasing costs and complexity of design, increased system content and greater flexibility means fewer vendors will have the capability to supply chips in the future,” said Jim Tully, vice president and chief of research for Gartner’s emerging technologies and semiconductor group. “The number of semiconductor vendors has risen steadily from about 120 vendors in the mid-1980s, to roughly 550 in 2003. Within 10 years, the industry will experience significant consolidation.”

The second megatrend concerns the increasing costs and increasing scale of semiconductor manufacturing. Fabrication plants are becoming extremely expensive, and next generation “fabs” will inevitably become too expensive for most existing companies.

“To survive, large and costly fabs will need to achieve significant economies of scale, and they will require high volumes of chip production, preferably standard chips that can be produced in a standardized environment with large batch sizes. These standard chips will then be customized after manufacture for specific applications,” Mr. Tully said. “This will result in fewer chip manufacturers in the future, but it won’t result in higher chip prices because the industry is capital-intensive and is highly competitive.”

The third megatrend relates to the growing importance of consumer markets. By 2013, more than 50 percent of chip sales will be for equipment markets targeted at consumers. One of the challenges for vendors is that the consumer market can be unpredictable (for reasons of fashion or fads). It can be hard to identify what consumers will want.

“Consumer markets are normally high volume and the overall market size is large,” Mr. Tully said. “However, margins on consumer products are very low and the value of individual product categories can be surprisingly small. The falling number of chips per application, because of integration, is playing its part in dampening the growth in these applications.”

In the past many semiconductor products were stand-alone, however the industry must prepare for the increasing role of service providers. Increasingly, large numbers of equipment are being interconnected, both over the Internet and in LANs. This makes them accessible to companies offering upgrades, content and other services.

“These services can generate far more revenue than equipment sales revenue and will dominate many sectors,” Mr. Tully said. “Service providers are likely to assume an important and dominant role in electronics. In many cases, these providers are likely to brand the equipment and to control the design and manufacturing of electronic equipment.”

New technologies have driven the semiconductor industry from the beginning, and new technologies will continue to drive the industry. Most of these have been incremental technology developments. However, disruptive technologies will have a significant and unpredictable effect on the industry. Examples of disruptive technologies include inkjet processes, light emitting polymers, carbon nanotubes, molecular transistors and protein-DNA logic.

Gartner analysts are providing detailed analysis on the outlook for the industry during the Gartner Dataquest Semiconductor Industry Summit, September 13-14 at the Fairmont San Francisco. The Summit is highlighting new Gartner Dataquest forecasts for the next phase of the semiconductor industry. Presentations are based on the very latest research that comes at a critical time in the semiconductor market cycle. A host of Gartner analysts are delivering these latest forecast details in a wide range of presentations covering every aspect of semiconductor technology.

Gartner Dataquest Semiconductor Industry Summit has attracted high-level attendees from across the semiconductor industry — including executives from chip manufacturers, equipment suppliers, design firms, original equipment manufacturers (OEMs) and government — as well as institutional investors. Through exclusive Gartner Dataquest research and company presentations, Gartner is identifying how the industry participants can position themselves to respond to the opportunities and challenges in established and emerging technologies.

Additional information about this Summit is available on Gartner’s Web site at www.gartner.com/us/semicon.

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