Editorial: Are we riding a rocking horse--or a rocket?
09/01/1999
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Robert Haavind
Editor in Chief, [email protected]
Although the upticks in semiconductor business have been steady for a few months now, the buildup has been slow. Some analysts believe that what we are seeing is demand being driven mainly by the need to upgrade infrastructure and speed up access to the Internet. The nature of this turn-around is clearly different, with the foundries hitting full capacity rapidly, while excess capacity remains for standard chips such as DRAMs and general-purpose logic. Over the past few years, the market was driven mainly by PCs. When the PC market surged, the demand for processors and memory rocketed, boosting prices and accelerating fab construction. Today, though, the PC market has shifted more toward less-capable, lower-cost boxes - mainly for Internet access - rather than for heavy-duty personal work (e.g., spreadsheets). This has dramatically cut chip margins.
Infrastructure systems (both for trunks, such as phone and cable networks, and for corporate/commercial intranets) are generally built around specialized chips (ASICs), with some programmable logic partitioned in for circuitry where standards are not yet firm, or where upgraded designs may be planned. These chips are put onto boards with an assortment of glue logic and auxiliary devices. Quantities may be in the thousands, or even hundreds, for these specialized designs. That falls far short of the millions of chips gobbled up by hot consumer products such as today's game consoles or yesterday's VCRs and Walkmans. Some hot new products are needed at the consumer end of the chain in order to get the whole industry sizzling again, some analysts believe. Otherwise this upturn may be short-lived, and, like a rocking horse, we may head back the other way again.
Part of the rationale for this scenario is that communications facilities are bought on a 20-year amortization schedule, so the demand for chips will remain at a fairly low level for a long time. That was the model when AT&T was a regulated monopoly under FCC control. Today's buildup is far different, however, with a race taking place not only among competing phone companies, but also with different media, including cable, satellites, and wireless. So the pace is considerably faster than in the regulated monopoly days, and a wide variety of circuits and systems is required for all the different contending modes. If they build up rapidly, however, semiconductor demand could peter out once the systems are in place.
Some had hoped that DVD (digital versatile disk) would be the new consumer driver, but last year DVD only went into about a million households, as vendors battle each other over contending, noncompatible standards, and the projections are for this to rise to three million this year. That is encouraging, but not enough for the hoped-for big surge in semiconductor demand. The rapid installation of high-bandwidth communications infrastructure will, however, make feasible a wide range of new electronic devices, some advanced extensions to today's PCs, TV set-top boxes, and wireless phones. Many other types are also likely, probably smart, information-rich appliances for tracking stocks and investments, keeping tabs on inventories, communicating with truck, taxicab, or delivery fleets, and so on. Nokia has already demonstrated a pocket device with a TV screen designed for a future broadband version of the European GPS system. It would know where the user is located, and allow local services, such as movies, restaurants, maps, etc., to be viewed as video. Motorola has built up its software capabilities to be able to design new families of intelligent devices for the future. Many other technology companies are doing the same.
It is not at all clear which of the future products might turn out to be the new Walkmans or VCRs, but undoubtedly some of them will. We all might want new set-top boxes, TV sets with computers built in, and PCs with the bandwidth to handle video. When that starts to happen, and it could be soon, we could once again get off that rocking horse and hop onto a rocket.