September 2012 – Even with the persistent troubles in global economics and various technology hurdles in advanced semiconductor manufacturing, IC market growth will continue to improve — and the key is a shift away from what’s been driving the market dynamics, explains IC Insights.

IC unit shipments have been the bedrock of growth in the IC industry for the past 15 years, underpinning roughly a 5% annual growth rate. But that rate will slow to 7% per year due as slowing global GDP weighs down demand, even as users demand electronic gadgets with more capabilities necessitating more capabilities crammed onto a single chip.

But the firm still sees the IC market expanding its long-term growth rate over the next 10 years to an 8% CAGR, because it thinks IC average selling prices (ASPs) will offset that slowing unit growth. IC ASPs actually declined an average of -4% per year for the past decade and a half, but are seen swinging to an average of 1% growth/year from 2011-2021, for an 8% CAGR.

Behind this shift, the firm explains, are four main factors:

• No new entry-point opportunities. Door’s closed to new manufacturing startups. (It’s a familiar refrain from the firm’s leader, Bill McClean.) That means less irrational overspending in new fabs.
• Fab-lite foundry model lives on. Another factor in reducing the exuberant overspending in IC fab capacity.
• Capex/sales narrowing. Despite the technical challenges to be overcome, capex as a percentage of sales continues to shrink: from 21% in 2011 to 19% in 2012, and likely 15% by the end of the decade, the firm projects.
• 450mm transition is delayed. Chipmakers have long seen a transition to 450mm wafers as their next major cost stepdown reduction — but now they have a lot of competing balls in the air: EUV, new processes, next-gen transistor structures (e.g. 3D), incorporation of new materials. Something’s got to give.