Challenging Assumptions
By David Lammers
Journalists are trained to not make assumptions. But it is hard not to. A few years ago, many of us routinely accepted the idea that the semiconductor industry is a “commodity industry” that had reached a “mature” phase.
In the midst of this low-growth scenario was another pessimistic assumption: that the Chinese would take over, leaving crumbs for the rest of us.
Here we are in 2011, a few weeks after a devastating earthquake – a good time to revisit assumptions.
Perhaps we should start with the idea that the chip industry’s best days are behind it. At the SEMI Industry Strategy Symposium Europe, Malcolm Penn, chief analyst at Future Horizons, presented data on semiconductor industry revenues which grabbed much attention.
Year Market ($B) Growth (%)
2010 $298.315 31.8%
2011 $325.040 9.0%
2012 $377.046 16.0%
2013 $369.505 -2.0%
2014 $399.066 8.0%
2015 $454.935 14.0%
Source: Future Horizons.
If the chip industry does grow annual revenues from roughly $300 billion now to >$450 billion in five years, it will benefit those who take big risks: companies which borrow to develop new products and/or build new factories.
Malcolm Penn
And it was Penn who noted that TSMC “thunders on” by boosting capex by 30 percent this year, though it will take a couple of years before that spending results in significant new capacity.
China’s Clone Cell Phones
Which leads to a second assumption that was challenged at the SEMI ISS meeting: that China will become a major player in the chip industry. Of course, we all know that it will, simply because the PRC’s population is so large, smart, hard-working, and hungry for information and entertainment technology.
It was Bill McClean of IC Insights who traveled from Phoenix to Grenoble to tell the largely European crowd that IP protection really, really matters in the foundry industry. When McClean spoke (in early March), industry scuttlebutt had it that Apple would switch a big chunk of its foundry business to TSMC, and perhaps, GlobalFoundries. McClean largely agreed, saying that Samsung just competes too closely with Apple at the systems level. Another factor is that TSMC is now spending enough to ensure Apple that it can handle, say, a $400 million piece of new business, he said.
Bill McClean
“Samsung is Apple’s biggest competitor: its Galaxy smartphones and tablets compete with the iPhone and the iPad. Taking your chip design to your biggest competitor is a very scary thing to do.”
We have to assume (there’s that word again) that Samsung executives are figuring out an iron-clad IP protection program for Apple.
But according to McClean’s line of thinking, any fab making processors for Apple won’t be in China. “China’s IP protection is terrible. It must be a very scary thing to do to bring a leading-edge design into China. Broadcom and the big fabless companies would never do that.”
As evidence, McClean said China’s clone cellphone manufacturers make a total of 130 million knock-off handsets every year in the PRC. “The Chinese government knows about this, and it has gotten so big that they are not going to shut down the illegal cellphone industry. IP production is just not there in China.”
But there we go again: making assumptions. SMIC, China’s largest foundry, has brought on David N.K. Wang as its CEO. Wang, an extremely capable person, is a native of the PRC who worked at Applied Materials for many years. Wang no doubt has a plan in place to assure Broadcom and others that SMIC, indeed, will be able to provide iron-clad protection of their design IP. We assume so.
