Market Watch: European market roundup: Continued growth predicted through 2001
03/01/2000
SPECIAL SECTION: EUROPEAN TECHNOLOGY
Grace Jeromski, Assistant Editor
After maintaining relative stability in the face of the 1996-1998 IC industry downturn, the European market grew to $28.2 billion in 1999, a 10% increase over 1998's $25.5 billion in revenue (see figure). The region's performance was in line with an improved worldwide semiconductor industry market that, according to a recent Dataquest report, saw revenues in excess of $160 billion in 1999, 17.6% over those in 1998. This was the first such double-digit percentage increase since 1995.
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As the industry enters 2000-2001, the global market remains poised for continued growth as reported by the Semiconductor Industry Association and market analysts like VLSI Research Inc. A recent VLSI forecast predicts that worldwide sales will reach $175 billion in 2000 and $219 billion in 2001. European market growth will follow suit: Sales of $17.7 billion are expected in 2000, while 2001 will see sales of $22 billion (Table 1).
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The IC market in Europe has not always followed prevailing trends, however. After worldwide sales hit a record high in 1995, Europe was one of the few areas that did not register a serious drop in market revenue, suffering only a 2% decrease in 1996 and actually experiencing a 6% increase in 1997. In 1998, as indicated by industry analyst Future Horizons, the combined revenues of the three largest European semiconductor companies increased by $0.7 billion at a time when the $126 billion worldwide market had declined 8% from 1997, and the top 10 worldwide semiconductor companies' consolidated revenue had dropped by $7.5 billion or 15% compared to the previous year.
Major companies
Europe's three largest players, STMicroelectronics, Infineon Technologies AG (formerly Siemens Semiconductor Group), and Philips Semiconductor, were responsible for 85% of European IC sales in 1999, up from 84% in 1998, according to IC Insights. STMicroelectronics was the 1999 leader with a sales increase of 20% over 1998; this growth rate was largely the result of the demand for flash memory products used in cellular handsets. Also in 1999, Infineon registered a 38% sales increase over 1998 due to increased activity in the DRAM and analog markets. The last of the top three, Philips, increased sales by 13% in 1999, up from an increase of 3% in 1998. These figures were partly affected by the company's acquisition of VLSI Technology in 2Q99. The leading European companies with their actual and estimated IC sales for 1998 and 1999 are shown in Table 2.
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Recent revenue data from Future Horizons gives another perspective on growth in the European market. Three non-European regional leaders — Intel (US), NEC (Japan), and Samsung Semiconductor (Asia Pacific) — and the European regional leader Infineon raised their combined 1999 revenues in Europe by 14%, a combined market share gain of 2.2% over 1998. Together, they earned about 40% of total European market revenues.
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Despite fluctuations in the worldwide market, STMicroelectronics, Infineon, and Philips have been consistently ranked among the top 10 worldwide IC companies. Table 3 shows revenue estimates, market share, and growth percentages for the top 10 in 1998 and 1999; in 1999, the European companies garnered approximately 10% of the worldwide market.
Market drivers
The factors that drive market growth are different for each region of the world, says Ron Bohn, director of research for Dataquest's semiconductor group. One historical factor driving the European market has been the development of cooperative, pre-competitive R&D alliances between semiconductor companies. Organizations like the Joint
European Submicron Silicon Initiative (JESSI) and the MicroElectronics Development for European Applications (MEDEA) conference, whose cooperative projects are focused on CMOS-based technology, manufacturing, multimedia, communications, automotive, and CAD, were created to aid the European semiconductor industry in its struggle to become competitive in worldwide markets.
The effects of MEDEA will probably not be felt until 2001, says Gail Purvis, a UK-based freelance writer and industry observer. But JESSI, formed in the late 1980s and dissolved in 1996, is credited with Philips', STMicroelectronics', and Infineon's rise to the worldwide ranks of the top 10 from 1993 to 1998, says Purvis. Future Horizon's chairman and CEO Malcolm Penn enthuses, "Europe leads the world in the field of pre-competitive cooperation, with a variety of firms routinely and regularly working together on joint projects using shared resources. It has developed over the years into a potpourri of nationalities, cultures, and traditions, bonded by a common goal.... As a result, Europe's microelectronics industry is getting more done, faster, and the bottom line results — market share gains — are beginning to show."
Penn also identifies another factor in Europe's continued success, which has allowed it to weather falling DRAM prices and the Asian downturn of the last few years: It is invested in diverse markets, including telecommunications, automotive electronics, smart cards, and multimedia consumer products. Unlike North America and the ROW, it is not heavily invested in DRAMS or major PC microprocessers. Recent figures from IC Insights illustrate this; while 56% of the worldwide market is invested in computer and consumer ICs, only 49% of Europe's market is dependent on these.
In general, states Louie Cruz, CMM manager at VLSI Research Inc., Europe is pretty well positioned to gain market share in the current upturn, since it invested aggressively throughout 1999, as did Taiwan, Korea, and the ROW. North America and Japan, however, will not be so well positioned. Cruz expects that North American suppliers who underinvested last year will be more aggressive in 2000.
European IC market trends (1993-2000).