Tablets, smartphones to fuel semiconductor growth

Jun 27 2011, 00:01 IST
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SummarySemiconductors touch our lives at every level, and in the years to come, their impact will increase manifold.

Semiconductors touch our lives at every level, and in the years to come, their impact will increase manifold. An immediate influencing factor is the boom in the electronics market that is pushing the demand for next-generation chip designing and manufacturing.

However, the earthquake and tsunami in Japan raised concerns about the supply of silicon wafers, batteries, crystal oscillators, packaging and other specialised materials. Good news is that supply constraints due to the situation in Japan have not derailed the electronics industry.

Nevertheless, the domestic semiconductor market is expected to see a mixed trend in the average selling prices (ASP). Peter Middleton, principal research analyst at Gartner says, “The disaster in Japan clearly had an impact on the semiconductor market, and supply chain behaviour, but it is less than initially feared. In response, in the last two weeks of March, vendors stepped up efforts to secure supply in the face of uncertainty and potential shortfalls— leading to some double ordering which continued into the second quarter.” He adds: “We think vendors were cautious with their second quarter guidance, and we expect the majority will exceed those estimates. Although the impact is less than feared, we are anticipating some residual effects in the third quarter of 2011 as friction in the supply chain may impact some production and some surprises may occur.”

Closer home, the industry is seeing a fluid situation in terms of pricing, especially for memory chips. Japan is a critical region from the semiconductor industry perspective. It is the home for a large number of fabrication facilities, semiconductor equipment companies and semiconductor material suppliers as well as being a global pioneer in chip design.

According to India Semiconductor Association (ISA) officials, “There is a trend of declining end product prices having a cascading effect on the prices of semiconductor components. The decline in ASP for various semiconductor components ranges from 5% to 10% and in cases of some components like discretes, the decline has been larger than 10%.” The recent natural calamity in Japan is expected to result in hardening of memory prices as 40% NAND and 15% of DRAM chips’ capacities are centered in Japan. This impact is expected to be felt in Q2 and Q3 of 2011 in the form of marginally higher prices for memory chips, adds the ISA report.

According to SEMI (Semiconductor Equipment and Materials International), Japanese semiconductor material suppliers comprise approximately 55-60% of the global market and Japanese companies produce about 35% of the world’s semiconductor manufacturing equipment by revenue. Voicing the same, Didier Lamouche, COO, ST Microelectronics, says that the situation in Japan is still fluid. “Though it is negative in the short term, we are yet to gauge the impact on a longer term on the effect of pricing pressure. However, we are looking at accelerating business opportunities in Japan with high potential new products for the mid-term revenue growth,” he adds.

Jaswinder Ahuja, corporate VP and MD, Cadence Design Systems (India), says, “There is no doubt that the tsunami and earthquakes that hit the region earlier this year have adversely affected the local manufacturing facilities, and that has had a cascading effect on the global semiconductor supply chain.” Semiconductor companies are still recovering from their setbacks and it will take some time to come back to the pre-tsunami level of activity. The impact to operations was mostly due to disruptions to transportation and electricity service, he adds.

The total market revenues generated in the Indian semiconductor market was $6.55 billion and estimated to touch $9.86 billion by 2012. The main trigger has to come from the government through better sops to increase the consumption pattern. Worldwide semiconductor revenue is projected to total $315 billion in 2011, a 5.1% increase from 2010 revenue of $299 billion, according to Gartner. It is seeing rapid semiconductor growth in the smartphone and media tablet categories. Through 2013, two-thirds of semiconductor industry revenue growth will come from smartphones and tablets.

“One critical trend is the introduction of new generations of high-performance mobile application processors, which form the heart of both smartphones and media tablets,” says Jon Erensen, research director at Gartner. “These high-end processors, combined with higher amounts of DRAM and NAND flash memory, will enable the performance and storage required for advanced new applications, including context-aware computing, augmented reality and computational photography,” he summarises.

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