Once foundering, now solid: Europe's semi market
04/01/2002
by Malcolm Penn, Future Horizons, Kent, UK
The year 2001 was a good one for the European semiconductor industry, with three of its firms — STMicroelectronics, Infineon Technologies, and Philips — ranked among the top 10 worldwide, accounting for 10.1% of the total market.
Overall, Europe's chip firms had a 13.0% worldwide market share, up from an all-time low of 7.0% in 1990 (Fig. 1). Both Philips and STMicroelectronics gained share in 2001, while Infineon Technologies, despite its dependence on the ravaged DRAM and telecom markets, maintained its relative 2000 position.
 Figure 1. Worldwide semiconductor market share by region. |
This was an achievement, since 15 years ago, conventional wisdom would have had Europe give up on semiconductor production and buy from US and Japanese firms. (Korea and Taiwan had not yet become players.) At the time, European semiconductor firms played mostly in their protected local market with a potpourri of products and processes, and were overmanned, oversubsidized, and losing money heavily. Virtually unheard of outside of Europe, the companies seemed condemned to slow extinction.
Today, Europe's semiconductor industry is a success story. On the chip-manufacturing front, Infineon Technologies leads the world in 300mm wafer processing. ASML is the number one lithography supplier, beating Japan into second and third place. In other sectors, firms like Finland's Nokia, with 97% of its sales from exports; UK's ARM, a leading intellectual property (IP) provider; and Europe's GSM mobile phone system — used in a range of geographic regions, including many parts of the US — are also successful. From chips to systems, materials to infrastructure, Europe's microelectronics firms now play a full role in the digital economy.
Several factors, some cultural and others structural, contributed to the European turnaround. The region's technology leaders were determined not to lose control of advanced semiconductor manufacturing technology. This forced Europe's semiconductor firms to engage in a major restructuring and consolidation program — at the technology, product, and company level. They also simultaneously embraced a program of collaborative R&D in order to leverage their limited resources. Starting with the MegaProject in 1985 and then JESSI in 1989, the initial European focus was to make its technology competitive with that of its international rivals.
By concentrating resources on a limited number of applications, the participants succeeded in catalyzing the effort between the various companies, which resulted in a closer and deeper collaboration than had ever been possible. Collaboration united Europe technically, as technology expertise was shared among European universities and research centers, chip firms, equipment and materials suppliers, system designers, and OEM firms.
Europe's comeback was also helped by the demand side change that has taken place over the past decade. Fifteen years ago, semiconductor demand was driven by the computer industry, clearly the province of the large US players, and by consumer electronics, where Japan was a dominant force.
While these sectors are still important, new applications have appeared, in particular, automotive, smart cards, telecommunications (especially wireless/mobile), and multimedia. These rely heavily on low-power, mixed signal/function, small-footprint technologies, ideally suited to Europe's skills and traditions (Fig. 2).
 Figure 2. Worldwide and European semiconductor market by end use. Source: Future Horizons |
Europe's traditional design strength and systems expertise in these areas has enabled it to successfully exploit other world markets. For example, STMicrolectronics boasts among its top 12 long-term strategic partners Alcatel, Nokia, and Nortel Networks (telecom); Bosch and Marelli (automotive); Hewlett Packard, Seagate, and Western Digital (computer); and Thomson Multimedia and Pioneer (consumer). Revenues from these accounts grew by 20.3%/year between 1998 and 2001, 40% faster than STMicroelectronics' overall growth rate, and six times faster than the market as a whole.
Europe's design expertise has recently evolved into a further success story, that of the chipless/IP (intellectual property) market, where it now plays a leading role. This, in turn, has been driven by the increasing system requirements for system-on-chip (SoC) ICs.
In order to speed up the SoC IC design cycle, reduce overall design costs, and overcome in-house design staff skill shortages, functional IP building blocks (also known as IP cores, cells, or macros) in this area are increasingly being purchased from external sources. Although this concept has been around for some years, it has only gained widespread market acceptance since the mid-1990s, and has proven ideally suited to Europe's design skills and traditions.
Looking ahead to 2006, Europe's microelectronics industry has undoubtedly benefited from being forced to consolidate during the late 1980s/early 1990s. Its efforts in pre-competitive collaboration have also proved highly effective. Cooperation is now a de facto way of life, and has helped Europe's firms get more done faster and at a lower overall cost.
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Due to the increased success of Europe's chip firms, wafer fab production in the region is expected to show a modest increase between now and 2006, growing from 13% to 14% of the total world output. In contrast, the overall market for semiconductor devices is expected to decline slightly, driven by the fact that end equipment OEM assembly, increasingly subcontracted to global contract equipment manufacturers, is moving outside the western European region to lower-cost production areas, especially the Czech Republic, Hungary, and Poland. As a result, Future Horizons predicts that Europe's percentage of the worldwide semiconductor market will drop from 21.7% in 2001 to 20.6% in 2006 (see the table).
We expect hardest hit areas to be the UK, Nordic, Benelux, and rest of Europe (ROE) regions, with key products at risk being TVs, set-top boxes, mobile phones, and consumer electronics.
IC design and IP generation will continue to flourish, driven by Europe's 180 independent chipless and fabless IC design houses, with revenue growth expected at a compound annual growth rate of 23% between now and 2006, outpacing worldwide chip market growth by 72%. Europe's chip firms are also expected to continue worldwide market share gain, given their industry expertise and global competitiveness.
With the technology gap closed, the current European industry collaborative — the eight-year MEDEA+ program started in January 2001 — is focusing on system innovation on silicon for the e-economy. Its central objective is to stimulate innovation and provide the technology platform that will allow the European microelectronics industry to maintain its world leadership position. Like its predecessors, it aims to reduce cost and risks inherent in innovative high-tech R&D.
Europe aside, there has been little restructuring in the worldwide semiconductor market. If anything, the situation has grown more diverse. In the mid-1980s, the top 20 semiconductor firms accounted for almost 80% of the market; today, that share has dipped to 69%. If Intel is excluded from the equation, the situation is even worse. This is the exact opposite of conventional industry trends, where one would expect to see the market maturing into top tier and boutique players, with the middle ground squeezed out, either by exiting the market or by merger/acquisition.
The 2001 market downturn is forcing a much-needed global industry restructuring, although for much of last year, this process was cosmetic, with firms shuttering older plants, reducing their work forces, and cutting back on production. By year's end, however, more forceful action had taken place, and we believe that the pace will accelerate during 2002.
Some companies will have cut back too far and too hard to be able to stay the course once the recovery process hardens. Europe has already been forced to face up to this reality, positioning the region among the winners, rather than the losers, in the emerging world semiconductor market order.
Malcolm Penn is chairman and CEO of Future Horizons, Blakes Green Cottage, Stone St., Near Seal, Sevenoaks, Kent TN15 0LQ, UK; ph 44/1732 740440, fax 44/1732 740442, e-mail [email protected], www.futurehorizons.com.
This article is based on the 2002 editions of the "European Semiconductor" and "European Chipless & Fabless IC Design House" reports, part of Future Horizons' ongoing analysis of the European microelectronics market. Price: $2600
eport.