New Chips for New Applications

Report Highlights

• Worldwide semiconductor sales revenues dropped by 32% in 2001 to $105.5 billion, a downturn not seen since 1985.
• The market is expected to rise at an average annual growth rate (AAGR) of 16.5% through 2006 to reach $226 billion.
• Microcontrollers, programmable logic and analog components, found in end products for every major market, will be the leading chip categories over the five-year period. Each will feature AAGRs of more than 20%.
• The growing markets for ASIC and DSP chips are good news for foundries that have banked their expenditures for state-of-the-art facilities on the fortunes of these higher-priced chips.
• China is emerging as a formidable semiconductor supplier nation.

INTRODUCTION

REASONS FOR STUDY AND ITS IMPORTANCE

The invention and evolution of integrated circuits, commonly known as "chips," have powered the phenomenal success of the semiconductor industry. It has produced a period of record growth that has lasted more than two decades. The more than $200 billion dollars worth of chip sales in 2000 represents a historic milestone in its history.

Signs of a market slowdown, however, appeared in the 4th quarter of 2000. The implosion of many Internet-based companies coupled with weaker economies around the globe reduced consumer demand for those products that are the ''bread and butter'' components of the semiconductor industry.

Semiconductor suppliers and the equipment industries that form its infrastructure faced many challenges in 2001. Confronted with sharply declining sales, they are making choices that inevitably will shape its future. Companies like Hitachi, have initiated major staff reductions. Still others, like Cypress Semiconductor and ASM Lithography, have decided to restructure, repositioning themselves for other potential opportunities. When other suppliers cut major initiatives, Intel reaffirmed confidence in the future by announcing intentions to maintain its $7.5 billion capital expenditures budget.

Despite such a variegated atmosphere, and possibly, because of it, there are still continual technological advances in hardware and software. These advances spur improvements in chip design and technology, enabling the smaller feature sizes, improved manufacturing techniques and more efficient designs that foster the emergence of new chips and new applications.

OBJECTIVES OF STUDY AND ITS CONTRIBUTION

Microprocessors ushered in the pervasive age of personal computing. Personal computers, historically the linchpin of many chip end products, have lost their market luster. Does the next generation of chips contain the same potential as the PC to transform the way people work and play?

In 2000, the meteoric rise in cellular handset sales, as well as healthy revenue from the network infrastructure sector, knighted the communications industry as the heir-apparent successor to the personal computing empire. Ironically, 2001 found sales in the same niches to be in the doldrums. Yet, despite a weak market, it is doubtful that consumers, having had a taste of the benefits of wireless technology, will dampen their ramped-up expectations for ubiquitous communications.

The question remains, however, whether this current technological phase, the growth and penetration of wireless devices in the home, office and various modes of transportation, will offer compelling enough applications to reap continued financial rewards for the end-product producers as well as their semiconductor suppliers.

This report proposes to analyze in depth the newest generation of chips and the scope of applications they serve. It addresses such questions as:

• Who is using these chips?
• What benefits do they accrue from using them?
• At what price points do they buy them?
• Which markets will reap the most benefits from their adoption?
• Which issues must be addressed to provide a successful return-on-investment?

AUDIENCE FOR REPORT

This report emphasizes the market potential for existing and emerging semiconductors as well as the current and future forces shaping the semiconductor industry. It is intended for manufacturers, supply chain personnel, marketing managers and futurists.

SCOPE AND CONTENT OF REPORT

This report analyzes emerging trends in new chips and their new applications. An overview of the semiconductor industry report_highlightss the main chip categories and discusses the top supplier market share, new chip architecture and the unique challenges that each category faces in the future. Five-year forecasts follow, segmented by chip categories as well as end-markets.

Succeeding chapters discuss enabling technologies, trends in venture capital, corporate and national research and development funding, the organizational and economic makeup of the semiconductor industry, and the legislative, political and environmental issues it faces. The changing dynamics of international market share also are addressed.

Appendices contain upcoming semiconductor industry-related conferences, recent patent applications and grants, as well as a list of supplier mergers and acquisitions.

METHODOLOGY AND INFORMATION SOURCES

The material presented in this report is based on information obtained from personal contacts with participants in the semiconductor industry as well as from an analysis of the technologies, issues and concerns gathered from technical papers and industry conferences. Our final analysis and projections combine the consensus of primary contacts with our assumptions regarding the impact of both historical and emerging trends.

Additional data was obtained from analysis of secondary sources. These include trade publications, trade associations, company literature and on-line databases. This research was done to supplement our understanding of applications, markets and trends in the semiconductor industry. All dollar projections in this report are based on 2001 constant dollars.