Growth Drivers for the Semiconductor Industry [2016 and beyond]
In the last post “Semiconductor Sales over last 25 years” we traced semiconductor sales since 1988 and also observed the incremental growth pattern. In this post we look at the key product segments that have historically driven growth for semiconductors and also analyze the application markets generating the demand for semiconductor products.
The global semiconductor industry is likely to cross the US $350B milestone by 2018. Year 2014 witnessed the semiconductor sales touch a life time high of US$ 335.8 B. For 2015 the sales remained flat at $335B. The major product segments in the semiconductor industry are:
- Logic Devices: ASIC’s and SOC’s (System-on-chip); Application specific chips and systems on chip. Examples are network processors, chips used in mobiles
- Memory: Memory IC’s like DRAM, Flash, SRAM etc.
- Analog Devices: Amplifiers, Filters, power management devices
- MPU: Microprocessors (CPU’s , GPU’s)
- MCU: Microcontrollers
- Optoelectronic Devices: LED’s, diodes. Typically these are optical-to-electrical or electrical-to-optical transducers. They are used in optical data transmission or various types of optical control and detection. Examples: Security systems, CD players, IR modules, photovoltaic cells in solar panels.
- Discrete Semiconductors: These are basic semiconductor devices such as diodes, transistors, thyristors etc.
- Sensors: These devices are intended to detect changes in its environment (temperature, pressure, light etc.) or detect an event (touch, motion, force etc.) Examples: Gas Sensor, Motion Sensor, Gyro Sensor etc.
- DSP (Digital Signal Processors): These are specialized processors for carrying out specific processing of a digital signal, which is converted from an analog input source. For example: An audio recording converted into a digital mp3 format.
For 2015, Logic Devices make up the largest segment with a 27% share of revenues ($91B). . It is followed by “Memory” devices ($77B, 23%), Analog ($45B, 13.4%) & MPU ($45B, 13.4%). These top 4 segments contribute 76% of sales. Optoelectronics segment has not only had the highest Y-o-Y growth of 10% but has also achieved a 15 year CAGR of 10.3%. Optoelectronics growth is led by Image sensors and LED’s. It is estimated that this segment will continue to its growth @ 8% – 10% for next 4-5 years. Logic Devices is another segment which has grown @ 7.4% CAGR since year 2000. This segment too is expected to continue to grow with continued demand from Consumer, Automotive and Industrial application markets. Memory, Analog and MPU segments have had a relatively subdued growth rate of 3.2%, 2.5% and 2.3% respectively.
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Demand distribution across key application areas
Traditionally PC’s / Computers have been the largest demand drivers however the PC market has been shrinking. SIA’s data also confirms the slowing of demand from PC’s. In 2013, where PC’s accounted for 34% of demand for semiconductors; it has fallen to 29.7% in 2015. (A reduction of $4B) Communication semiconductor products include cellular baseband processors, mobile Wi-Fi chips, Bluetooth transceivers, GPS receivers and NFC chips. These products are used in smartphones, wireless and wireline communication equipment. In the last 3 years, Communications has overtaken PC’s as the biggest demand driver for semiconductors, with a 34% share. The IOT mega trend and the continuing demand for smartphones from the emerging market will continue spur demand for communications products.
Industrial is another application segment which, at $44B, accounts for 13% demand share, but has grown at 21% (CAGR) in the last two years. Growth is driven by LEDs for general lighting, Logic IC’s (used in automation, PLC’s and control systems) and Image sensors (medical imaging, military equipment, and security cameras). IHS estimates 3D printers and avionics to continue to lead growth for industrial segment.
Demand from Automotive industry grew at the fastest rate of 9.1% over the last two years. The semiconductor content in the vehicle is set to grow with more-and more “connected cars” entering the market. The demand for automotives in the emerging markets continues to rise. According to Mckinsey, an average car has $350 worth of semiconductor content and 2/3 of that is MCU and analog. With emission regulations becoming stricter by the year, there is new opportunity in hybrid and electric vehicles. Connectivity, Telematics and ADAS (advanced driver assistance systems) are the fastest growing segments.
Summary of the Semiconductor Growth Drivers
- Optoelectronics will by far lead the growth (8% – 9%) across segments in CAGR terms. The segment should achieve $45B in revenues by 2020.
- Logic Devices will continue to be the largest product segment and should hit the $95B mark in by 2018.
- Communications and Industrial markets are likely to be the largest incremental demand drivers for the next 2-3 years. These markets have added an incremental $30B in the last two years. Industrial includes Medical Devices, Aerospace and Defence and Manufacturing)
- Estimated demand growth in Automotive will drive the MCU and Analog and Sensor segments.
- Growth in industrial semiconductors will also drive the demand for MCU, Optical – Sensor – Discrete segments
- Memory segment is expected to continue is cyclical growth pattern and growth of under 5%.
References & Resources
- Growth Drivers Analysis from Market Realist
- IC Insights O-S-D Report Summary
- Global Sales Report from Semiconductor Industry Association
- PWC Semiconductor Industry Analysis