What will get the monkey off our back?

11/01/2002

Is the semiconductor industry stuck in a rut because there is no Killer Ap on the horizon? Many observers are concerned that there is no new huge-volume, chip-based product ready to take off — as color TV, VCRs, PCs or cellular phones did in the past — even if the economy starts perking again. That could mean that the industry's growth is leveling off. If consumers and businesses feel that the electronic devices they now have are adequate for their needs, and there are no market sectors with the potential for explosive growth, electronics becomes basically a replacement business. Consumers able to afford them already have color TVs, VCRs, PCs, and cell phones. Businesses already have networks, servers, PCs and pocket phones. If they work, why replace them?

The personal computer (PC) was the major driver of chip sales for the last couple of decades. To take advantage of new software and keep up with everyone else, users needed new computers every three years or so, with more memory, larger drives, and faster chips. On top of that, the number of users was growing rapidly all over the world. Even in the current downturn, faster chips are coming on the market more rapidly than in the past, but the PC market is not growing. The main beneficiaries of faster processors are the gamers, who look for more realistic animation and richer graphics, and there are special game machines for them. Most other PC users, especially business users, don't care about faster animation and better shading, or the ability to run streaming video.

So, is the party over? While things will remain slow until industry profits begin to rise, we believe that when that happens the semiconductor industry will boom again. If there are big winners on the horizon, what are they? Dan Hutcheson of VLSI Research has suggested that they are here now, but we tend not to recognize them until after the market takes off. We would like to suggest some strong candidates.

Imagine a desktop without cables hanging all over it, and a thin, flat, large-screen monitor that takes up hardly any space. That's a lot better than what most business users have now, and with 802.11 and Bluetooth devices for cable-free links, and large high-resolution flat displays, equipment like this will soon be common. Moreover, prices are low and getting lower, particularly in the hot notebook PC market. Any business user who has access to PCs with faster chips and upgraded software recognizes that there IS a big difference, and speedier response can help boost productivity. As profits pick up in the business sector, millions of users are likely to make the transition to cable-free, flat-screen, higher-speed systems.

While pocket phones are already everywhere, enhancements are not only making them more reliable, they are also adding functions. Your pocket device might be used to access the Internet and pick up and respond to e-mail, wherever you might be. Some users are doing that already, (with BlackBerries) and more capabilities are coming rapidly, including color displays (especially in Japan), faster processors, smaller form factors, and even GPS to pinpoint your location.

These are developments with strong appeal for business and commercial users. Ed White, analyst for Lehman Bros., pointed out at a recent Semi breakfast panel that the transition from analog to digital, particularly on cable systems, is spurring the market for digital chips, and the new flat-screen monitors and larger portable displays also call for new devices. Game machines with powerful new 64-bit and even 128-bit processors are adding functionality, so they can be used interactively over the Internet, and can link to digital TV sets. Home networking is growing in popularity, using both wireless and wire-line connections. DVDs are the hottest area in consumer electronics. At a recent technical conference, the only way to follow the papers was by plugging a CD into your notebook computer, because there were no paper proceedings, and perhaps a quarter of the attendees were doing so.

Fab capacity is getting tight at 130nm and below because more and more of these applications require the most advanced chips, and the push to 90nm is widespread. One reason, White points out, is that with 90nm devices, portable equipment could run on half the power.

As economies recover around the world, the dynamic growth of potential users of chip-based devices will resume, especially in China and Pacific Rim nations. Potential killer aps are all around us. We just need the world economy to get moving again and demand will soar. Most forecasters see only modest growth all through 2003. But they've been wrong before, and with all that good stuff out there, they may be wrong again.

Robert Haavind
Editor in Chief