What’s on the Semiconductor Horizon?

“Every horizon, upon being reached, reveals another beckoning in the distance. Always, I am on the horizon. ” -W. Eugene Smith

Though Smith’s words were related to his groundbreaking photography, I think they apply as I consider the semiconductor industry. No matter who you talk to, it seems what’s happening on the horizon is always difficult to ascertain.sun rise san fran

Looking forward, the industry seems incredibly upbeat. According to KMPG’s Global Semiconductor Survey, 81 percent of semiconductor manufacturers expect that their companies’ revenues will grow this year, with 20 percent indicating double-digit growth and only 3 percent foreseeing a downturn. Most characterized the year as continuing an expansion stage, though they were split nearly evenly as to whether this was early or late in development. Other key findings identified the medical and networking/communications markets as providing the greatest opportunity for growth, with sensors being the leading product segment. From an applications perspective, cloud computing and data analytics were the strongest drivers in the immediate term, joined by robotics and automotive sensors over a three-year horizon.

Interestingly, the results forecast increasing spending on capital equipment and R&D, reflecting both the current optimism and a willingness to invest for future growth; but industry analyst Gartner says that “caution is a prevailing sentiment” in the sector, and revised its estimate of total capital spending growth to 0.8 percent in 2015 compared with 8.8 percent in its previous forecast. According to Gartner, conservative investment strategies are paving the way for slower growth this year. ExtremeTech weighs in by saying, “2015 is likely to be a particularly critical year on multiple fronts, for multiple semiconductor companies. There’s a great deal of potential disruption and meaningful product improvements coming down the pipe.”

According to ExtremeTech, the evolution of mobile technology is the major driver of the overall industry:

From ‘disruptive’ apps like Uber to the furor surrounding Google Glass to the dubious efficiency of smartwatches, mobile hardware and devices increasingly shape the boundaries of what’s possible in computing. With new 20nm hardware, 64-bit SoCs, and 14nm following in 2016, we should see strong scaling on all fronts—even if the companies that drive that advance are jockeying for position and dominance.

SIddarth Sheth, vice president of networking interconnect at Inphi, notes in SiliconIndia that while venture capital investment in fabless semiconductor companies in North America “has slowed to a trickle,” in contrast to strong investment in some emerging markets, the fabless sector remains overwhelmingly North American-based. This lack of start-up investment at the center has had an effect on innovation:

Most of the innovation, as a result, is now the domain of small-cap, mid-cap, and large-cap semiconductor firms, which continue to invest in their target markets. This fact has led to a consolidation trend as larger-cap firms that look to grow and innovate are turning to synergistic merger and acquisition options of their smaller peers. And frankly, the cost of research and development continues to increase with CAD, lithography, mask sets, and the arrival of FinFET-based process technology, which is leading to much larger team sizes to get to first pass silicon. This is driving the industry to become the domain of companies that have the scale to take on these expensive research and development projects.

Perhaps Sheth’s most interesting observation relates to the movement to vertical integration by consumer and cloud companies (think Apple, Google, Amazon) that are increasingly looking to do their own IC development to gain more control of their supply and cost structures while protecting their differentiating intellectual property.

One thing’s for sure: there’s plenty of change out there on the horizon. As Maya Angelou said, “the horizon leans forward, offering you space to place new steps of change.” It will be interesting to see those steps as they are taken in the semiconductor industry.

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