Consumers Hungry for Connectivity Drive Strong Semiconductor Growth

Innovative new devices in an increasingly mobile and well-networked world will help to drive semiconductor growth in the coming years, although traditional drivers like PCs and cell phones still dominate.

By Aaron Hand

May 27, 2010 – As the semiconductor industry digs out of one of its worst downcycles in its history, there are several driving forces behind predictions for double-digit growth in 2010. But one key factor that's behind not only an expected two-year growth cycle but also a mitigated drop in last year's revenue is continued innovation.

Although common thinking at the beginning of last year said that semiconductor revenue could drop by 25% or more in 2009, Semico Research Corp. considered that scenario unlikely simply because of the continued underlying demand for the applications driving semiconductor usage, predicting instead a 10% decline for the year, according to Jim Feldhan, president of the Phoenix-based market analyst firm. The semiconductor market ultimately ended 2009 with a 9% drop in revenue, Feldhan said in March, noting that he expects 24% growth this year.

Traditional market drivers like PCs and cell phones continue to dominate the semiconductor markets. (Source: Semico Research)

Semiconductor content in consumer products is continuing to increase, as traditional growth drivers like PCs and cell phones keep selling, but also as consumers demand the newest entertainment and productivity options like e-readers and WiMAX devices.

"The consumer really wants entertainment, they want productivity, and they like cool stuff," Feldhan noted at SEMI's Industry Strategy Symposium (ISS) earlier this year. He has also said that Semico analysts are seeing strong consumer demand for electronics that they have not seen for several years.

According to Semico, the PC market was up overall last year, with notebooks seeing double-digit growth, netbooks gaining traction, and an increasingly mobile workforce adopting improved wireless technologies. Cell phones, and particularly smart phones, are also doing well, with new features and applications helping to drive the market. Notebook PCs are expected to bring in the most semiconductor revenue in 2010, and other top markets will include desktop PCs, and mid-range and high-end cell phones (see chart).

Notebook PCs are also one of the Top 10 growth markets, a list led by WiMAX base stations and WiMAX CPE, which are still relatively small markets. Other fast-growing markets are e-readers, digital photo frames, netbooks, portable navigation devices, DVD recorders, digital television, and handheld consoles, according to Semico. In 2010, notebooks are expected to grow 18%, netbooks 60%, smart phones 21%, and e-readers 80%.

Although Feldhan noted that it is difficult to forecast how new innovations might take off, he sees huge potential around the explosion of social media and everything it encompasses. The server market, which will already constitute the third largest semiconductor buyer this year, is likely to see even bigger growth. Millions of consumers are making videos and posting them on the Internet, and tens of millions of people are watching those videos; 80% of companies are using LinkedIn as their primary tool for finding employees; and companies are adding 1 petabyte of new storage capacity each month, according to Semico. Social media is also impacting mobile device usage; consider that 80% of Twitter usage is on mobile devices, with people updating their statuses at anytime, from anywhere. Home networking has been talked about for several years, but is really starting to take off now, with families wanting to share information in the home, Feldhan said – movies, games, books, photos and more. Drivers behind the growth of home networking include broadband and wireless communications access; electronic devices such as HDTVs, DVRs and gaming devices; and changes in life styles, including an aging population, more need for security, social networking, and increased desires for "green" living.
	A Plug Computer is designed to draw so little power that it can be left on and connected all the time. It includes a gigahertz-class CPU for performance comparable to a PC. (Source: Marvell)

Other semiconductor market drivers for the future, Feldhan predicts, include such technology innovations as 3-D movies, television and games; picoprojectors, and even cell phones integrating projectors; wireless medical devices; smart clothes; various automotive advances; and a plug computer that is "the kind of thing that's going to transform electronics," he said.

Feldhan says he expects the semiconductor industry to be looking much stronger financially by the end of this year, able to invest and continue innovating.

Posted in: semiconductors