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Front End fab equipment spending is projected to increase up to another 20 percent in 2015 to US$ 42 billion, according to most recent edition of the SEMI World Fab Forecast.  In 2015, equipment spending could mark a historical record high, surpassing the previous peak years of 2007 ($39 billion) and 2011 ($40 billion). In 2014, the report predicts growth of approximately 21 percent for Front End fab equipment spending, for total spending of $34.9 billion.

Seven companies are expected to spend $2 billion or more in 2014, representing almost 80 percent of all fab equipment spending for Front End facilities; a similar pattern is expected in 2015. About 90 percent of all equipment spending is for 300mm fabs.

According to the World Fab Forecast, in 2014, the five regions with the highest forecast spending on equipment are: Taiwan ($9.7 billion), Americas ($7.8 billion), Korea ($6.8 billion), China ($4.6 billion), and Japan ($1.9 billion). In 2015, the same regions will lead: Taiwan ($12.0 billion), Korea ($8.0 billion), Americas ($7.9 billion), China ($5.0 billion), and Japan ($4.2 billion). Spending in Europe is expected to nearly double (from 2014 to 2015) to $3.8 billion.

As Figure 1 illustrates, before the last economic downturn, most equipment spending was for new additional capacity. SEMI reports that in 2010 and 2011, fab equipment spending growth rates increased dramatically, but installed capacity grew by only 7 percent in both years. In 2012 and 2013, installed capacity grew 2 percent or less. Some industry segments, such as foundries, see continuous capacity expansion, while other segments show much lower growth — pulling down the total global growth rate for installed capacity to below the 3 percent mark.


Figure 1 illustrates fab equipment spending since 2003 and the change of installed capacity (excluding Discretes and LEDs).


In addition to foundries, the World Fab Forecast report captures capacities across all industry segments as well as System LSI, Analog, Power, MEMS, LED, Memory and Logic/MPUs.

DRAM is now slowly coming out of a declining trend with -3 percent in 2014 and reaching close to zero by end of 2015. Over the past three to four years, some major players have switched fabs from DRAM to System LSI or Flash while others have discontinued DRAM production completely, contributing to declining DRAM capacity.

The SEMI World Fab Forecast also provides detailed data about fab construction projects, with spending expected to total $6.7 billion in 2014 and over $5.0 billion in 2015. In 2014, the leading regions for construction spending are Taiwan, Americas, and Korea.  In 2015, the highest spending is expected in Europe/Mideast, followed by Taiwan and Japan.

Learn more about the SEMI World Fab Forecast which uses a bottom-up approach methodology, providing high-level summaries and graphs, and in-depth analyses of capital expenditures, capacities, technology and products by fab. Additionally, the database provides forecasts for the next 18 months by quarter. These tools are invaluable for understanding how the semiconductor manufacturing will look in 2014 and 2015, and learning more about capex for construction projects, fab equipping, technology levels, and products.

The SEMI Worldwide Semiconductor Equipment Market Subscription (WWSEMS) data tracks only new equipment for fabs and test and assembly and packaging houses.  The SEMI World Fab Forecast and its related Fab Database reports track any equipment needed to ramp fabs, upgrade technology nodes, and expand or change wafer size, including new equipment, used equipment, or in-house equipment. Learn more about the SEMI fab databases at: www.semi.org/MarketInfo/FabDatabase and www.youtube.com/user/SEMImktstats

Silicon carbide is one of the most interesting semiconductor materials in electrical power components for energy savings. Components are already in use today in hybrid cars and solar power inverters. The high efficiency of these components minimizes energy loss and makes green power economically feasible.

A new company, Epiluvac AB, has entered the scene with the ambition to supply the needed deposition equipment.

Much of the pioneering research around silicon carbide was done at Linköping University in Sweden, where the highly successful hot-wall CVD reactor type was developed. This reactor type has been successfully used all over the world by the most prestigious labs, and is well known for its supreme qualities.

The new company, Epiluvac AB, will continue the development of this reactor type. The complete team at Epiluvac has many years of experience developing hot-wall systems.

Today, Sweden has a unique cluster of companies and universities in the forefront of silicon carbide technology. The hot-wall CVD reactor has been the workhorse in R&D labs all over the world, and a large number of scientific papers have been published around material grown in them.

“We are convinced that Epiluvac AB will be able to supply the best possible CVD tools to R&D labs around the world,” says Bo Hammarlund, managing director of Epiluvac AB. “The system design during three decades has proven to meet the high expectations of the best researchers around the world.”

“It is also our ambition to stay in close contact with our customers in order to customize the tools for the specific needs. We have a lot of experience in doing this. With the unique cluster of silicon carbide companies we have in Sweden, we are also able to pick up new demands at an early stage for not only SiC but also GaN, AlN, and graphene.”

The hot-wall reactors have already proven to be successful tools for producing graphene. Epiluvac is one partner in the Strategic Innovation graphene program led by Chalmers University, Gothenburg.

Epiluvac AB offices and manufacturing facilities are located in the Ideon Science Park, Lund, Sweden, close to Lund University and the multi-disciplinary research centers ESS and Max IV in one of the most exciting research regions in Europe.

SEMI, the global industry association for companies that supply manufacturing technology and materials to the world’’s chip makers, today reported that worldwide semiconductor manufacturing equipment billings reached US$ 9.62 billion in the second quarter of 2014. The billings figure is 5 percent lower than the first quarter of 2014 and 28 percent higher than the same quarter a year ago. The data is gathered jointly with the Semiconductor Equipment Association of Japan (SEAJ) from over 100 global equipment companies that provide data on a monthly basis.

Worldwide semiconductor equipment bookings were $9.96 billion in the second quarter of 2014. The figure is 9 percent higher than the same quarter a year ago and 1 percent higher than the bookings figure for the first quarter of 2014.

The quarterly billings data by region in billions of U.S. dollars, quarter-over-quarter growth and year-over-year rates by region are as follows:













North America










































Source: SEMI/SEAJ September 2014

Note: Figures may not add due to rounding.

Although operators will continue to face strong international competition, new opportunities in next-generation semiconductors and electronic inputs will encourage operators to invest in product development. For these reasons, industry research firm IBISWorld has updated a report on the Semiconductor and Circuit Manufacturing industry in its growing industry report collection.

Semiconductors are a core component of electronic devices and form a vital part of products ranging from devices and systems (e.g. computers, cell phones and televisions) to solutions and services (e.g. internet providers, telecommunications and broadcasting services). The Semiconductor and Circuit Manufacturing industry is one of the top export industries in the United States and, according to the Semiconductor Industry Association (SIA), indirectly provides jobs to 250,000 Americans. Valued at $79.5 billion, the industry has grown at an average annual rate of 4.8% in the five years to 2014.

“However, a portion of this growth represents a recovery from the industry’s dismal performance in 2009,” according to IBISWorld Industry Analyst Darryle Ulama.

Revenue is expected to contract by 1.7% in 2014, as demand for US-made semiconductors is offset by international competition and aggressive import penetration. Emerging countries, particularly in East Asia, have siphoned semiconductor manufacturing away from the United States through industrial policy, tax incentives and high-tech corridors with low-cost labor. Even as global demand for semiconductors rises, industry manufacturers are operating in a highly competitive global industry. “Combined with price reductions, production outsourcing and international competition have prevented the industry from achieving higher revenue growth in the past five years,” says Ulama These factors have also contributed to the industry’s high revenue volatility, as industry performance becomes more closely embedded into the globalized electronics value chain.

In the five years to 2019, greater research and development efforts will sustain the industry. Although operators will continue to face strong international competition, new opportunities in next-generation semiconductors and electronic inputs will encourage operators to invest in product development. For example, manufacturers will focus on producing wide bandgap semiconductors that are smaller, faster and more efficient than their silicon counterparts. Additionally, greater demand for industry products in smart grid technology and smart vehicles will spur revenue growth.

SEMI today announced the keynotes for the 2nd Vietnam Semiconductor Strategy Summit(September 16-17), an executive conference focused on Vietnam’’s growing role in the global semiconductor industry. The executive event held at the InterContinental Asiana Saigon Hotel in Ho Chi Minh City, brings together key decision-makers shaping the future of the industry in Vietnam, and international participants from major companies in the semiconductor manufacturing supply chain.  Keynote presentations include Sherry Boger, Vietnam general manager, Intel Corporation, and Pham B Tuan, CNS, who will both provide their perspectives on current and future industry development in Vietnam.

In total for 2014 and 2015, SEMI estimates a spending of almost $4 billion on front-end and back-end equipment in the Southeast Asia region, and another $13 billion in spending on materials including $3 billion on fab related materials. In addition, according to the SEMI World Fab Forecast, Southeast Asia is home to over 35 production fabs covering Foundry, Compound Semiconductors, MEMS, Power, LED, and other devices. Specific to backend manufacturing, Gartner reports that the Southeast Asia microelectronics manufacturing market accounts for 27 percent of the world’s assembly, packaging, and test production square footage.

At this year’s summit, executives from leading microelectronics companies —and semiconductor equipment and materials companies — will meet with delegates representing Vietnamese government, academia, research, and industry to explore and discuss the key strategies and opportunities in the growing Vietnam semiconductor industry. The event includes:

  • Market Overviews: Presentations by Bettina Weiss, SEMI Headquarters and Clark Tseng, SEMI Taiwan
  • Semiconductor Manufacturing in Vietnam: Presentations by: Sherry Boger, Intel; Pham B Tuan, CNS; Solomon Ng, STMicroelectronics; Todd Curtis, Fab-Finder; and Cor Claeys, imec
  • Two Panel Discussions: Investor Perspectives (moderated by Eduard Hoeberichts, FabMax) and Education and Workforce Development (moderated by Bettina Weiss, SEMI)
  • Tabletop exhibition and discussions

“Vietnam is committed to the global microelectronics world and moving beyond backend,” said Kai Fai Ng, president SEMI Southeast Asia. As the first major new fab project in Vietnam, many challenges still remain, from infrastructure and process technology to device design and IP creation and protection. The SEMI Vietnam event provides a key platform to advance important discussions and decision-making in this promising and growing market.”

The connections and relationships forged during the Summit are expected to drive further growth over the next decade and beyond. Global stakeholders with an interest in Vietnam’’s semiconductor market, including those from the equipment, materials, and device and R&D communities, are invited to share their vision, insights and outlook with Vietnam’s local business, technology and educational communities.

The 2nd SEMI Vietnam Semiconductor Strategy Summit is organized by SEMI and co-organized by Saigon Hi-Tech Park (SHTP) and Ho Chi Minh City Semiconductor Industry Association (HSIA).  The premier sponsor is FabMax. Individual registration costs US$750 for SEMI members and US$950 for non-members. Registration and additional information is available online at www.semi.org/vietnam.

When ClassOne Technology introduced its new Solstice electroplating systems at SEMICON West last month they didn’t expect to actually sell their first production unit off the show floor, but that’s what happened. The company reported that the Washington Nanofabrication Facility (WNF) at the University of Washington purchased the Solstice Model LT plating tool for installation at its facility in Seattle, Washington. The WNF is a national user center that is a part of the National Nanotechnology Infrastructure Network (NNIN). WNF is a full-service micro and nanotechnology user facility and the largest public-access fabrication center in the Pacific Northwest. It provides 15,000 sq ft of laboratories, cleanrooms, and user spaces focused on enabling basic and applied research, advanced R&D and prototype production.

“The Solstice LT was exactly what we’ve been looking for,” said Michael Khbeis, Ph.D., Associate Director of the WNF. “It’s a very flexible development tool with the capabilities we need to serve our customers and perform a range of advanced processes — Through Silicon Via (TSV) plating and MEMS are particularly important to us. Plus, the LT price was within our budget, so we made our purchase commitment right there at the show.”

“And WNF wasn’t the only one,” noted Kevin Witt, ClassOne’s VP of Technology. “The customer interest in Solstice at SEMICON was unprecedented in my experience. We had high-level discussions with more than a dozen serious potential buyers, and many of those look like they will turn into purchase orders in the coming weeks.”

To date, ClassOne has announced two Solstice models: The semi-automated Solstice LT features 1 or 2 chambers for development and pilot lines and starts at $350k. The fully-automated, cassette-to-cassette Solstice S8 provides up to 8 process chambers, throughputs up to 75 wph and starts at $1M — which is less than half the cost of equivalent 300mm tools from the large manufacturers.

ClassOne Technology, founded in early 2013, produces new wet processing tools; and its stated mission is to offer more affordable alternatives to the large systems from larger equipment manufacturers. The company specifically focuses on the needs of cost-conscious smaller-substrate users in emerging technologies such as MEMS, LEDs, Power Devices, RF Communications, Interposers, Photonics and Microfluidics. In addition to electroplating systems, ClassOne Technology also provides advanced Spin Rinse Dryers (SRDs), Spray Solvent Tools (SSTs) and more.

“We’ve been very gratified by the overwhelming customer response we received at SEMICON,” said Byron Exarcos, President of ClassOne. “We describe what we do as ‘advanced wet processing tools for the rest of us,’ and it’s evident that users are really understanding — and appreciating — the concept.”

North America-based manufacturers of semiconductor equipment posted $1.41 billion in orders worldwide in July 2014 (three-month average basis) and a book-to-bill ratio of 1.07, according to the July EMDS Book-to-Bill Report published today by SEMI.   A book-to-bill of 1.07 means that $107 worth of orders were received for every $100 of product billed for the month.

The three-month average of worldwide bookings in July 2014 was $1.41 billion. The bookings figure is 2.8  percent lower than the final June 2014 level of $1.46 billion, and is 17.1 percent higher than the July 2013 order level of $1.21 billion.

The three-month average of worldwide billings in July 2014 was $1.32 billion. The billings figure is 0.7 percent lower than the final June 2014 level of $1.33 billion, and is 9.4 percent higher than the July 2013 billings level of $1.20 billion.

“Order activity for semiconductor equipment has held at a steady level so far for 2014,” said Denny McGuirk, president and CEO of SEMI. “This trend, along with improvements in semiconductor device sales and unit shipments, is consistent with our outlook for strong equipment sales growth this year.”

The SEMI book-to-bill is a ratio of three-month moving averages of worldwide bookings and billings for North American-based semiconductor equipment manufacturers. Billings and bookings figures are in millions of U.S. dollars.


(3-mo. avg)

(3-mo. avg)


February 2014




March 2014




April 2014




May 2014




June 2014 (final)




July 2014 (prelim)




Source: SEMI, August 2014

The Semiconductor Industry Association (SIA) today announced that worldwide sales of semiconductors reached $82.7 billion during the second quarter of 2014, an increase of 5.4 percent over the previous quarter and a jump of 10.8 percent compared to the second quarter of 2013. Global sales for the month of June 2014 reached $27.57 billion, marking the industry’s highest monthly sales ever. June’s sales were 10.8 percent higher than the June 2013 total of $24.88 billion and 2.6 percent more than last month’s total of $26.86 billion. Year-to-date sales during the first half of 2014 were 11.1 percent higher than they were at the same point in 2013, which was a record year for semiconductor revenues. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

“Through the first half of 2014, the global semiconductor market has demonstrated consistent, across-the-board growth, with the Americas region continuing to show particular strength,” said Brian Toohey, president and CEO, Semiconductor Industry Association. “The industry posted its highest-ever second quarter sales and outperformed the latest World Semiconductor Trade Statistics (WSTS) sales forecast. Looking forward, macroeconomic indicators – including solid U.S. GDP growth announced last week – bode well for continued growth in the second half of 2014 and beyond.”

Regionally, sales were up compared to last month in the Americas (4.9 percent), Asia Pacific (2.1 percent), Japan (2.1 percent), and Europe (1.9 percent). Compared to June 2013, sales increased in the Americas (12.1 percent), Europe (12.1 percent), Asia Pacific (10.5 percent), and Japan (8.5 percent). All four regional markets have posted better year-to-date sales through the first half of 2014 than they did through the same point last year.

June 2014
Month-to-Month Sales
Market Last Month Current Month % Change
Americas 5.09 5.34 4.9%
Europe 3.13 3.19 1.9%
Japan 2.89 2.95 2.1%
Asia Pacific 15.76 16.09 2.1%
Total 26.86 27.57 2.6%
Year-to-Year Sales
Market Last Year Current Month % Change
Americas 4.76 5.34 12.1%
Europe 2.84 3.19 12.1%
Japan 2.72 2.95 8.5%
Asia Pacific 14.56 16.09 10.5%
Total 24.88 27.57 10.8%
Three-Month-Moving Average Sales
Market Jan/Feb/Mar Apr/May/June % Change
Americas 5.08 5.34 5.1%
Europe 3.08 3.19 3.5%
Japan 2.81 2.95 4.9%
Asia Pacific 15.18 16.09 6.0%
Total 26.15 27.57 5.4%


Historically, the major semiconductor capital equipment manufacturers have focused on supporting the bigger semiconductor companies at the expense of the smaller ones. The last decade’s round of consolidations in the manufacturing and equipment sectors has only exacerbated this trend. This approach may make good business sense for the large equipment companies, but it’s created a serious challenge for smaller IC manufacturers. Even worse, it now threatens to stifle the continuing innovation on which the high tech industry depends.

It’s hard to fault the big equipment players for their business model. It’s much more cost-effective and profitable to dedicate the bulk of your resources to those customers who want to buy multiple process tools featuring “bleeding edge” technology on highly automated, volume production platforms. In many cases, it’s simply not as profitable to engage with smaller customers.

So what choice do the manufacturers have for populating their fabs if they’re running 200mm or smaller wafers? One alternative is to buy refurbished tools, assuming they can find a tool that meets their needs, which is not always easy. Another is to buy a bigger tool with more performance capabilities than they need, which busts their equipment budget. There aren’t many other options.

Now, one could dismiss this issue by simply saying, that’s the way this market works. Continued growth in our industry has always depended on a certain path of continual innovation. “Smaller, faster, cheaper” — producing smaller, more powerful chips in ever greater volume on larger wafers was a highly successful means of turning computers and subsequent mobile computing and communication devices into household items. It’s hard to fault a business/technology model that has been successful for so many years.

On the other hand, every emerging market eventually matures. We’ve all experi- enced the boom-and-bust cycles that roil our industry and what happens when the “last big thing” plateaus or dries up. Today, the capital equipment market is at a cusp. We need to examine whether the traditional smaller-design-rules/bigger-wafers/faster-throughput approach is helping or hindering the introduction of new technologies.

Today’s emerging technologies include devices such as smart sensors, power and RF wireless devices. The fact is, many of these chips can be made quite well and quite profitably using larger design rules on 200mm or even smaller substrates. However, many of the companies developing these devices are not huge enterprises, and they’re hampered by the unavailability of tools delivering the appropriate levels of process technology, automation and throughput — at a price they can afford. Ironically, our industry is in a phase where the equipment companies that once drove significant innovations, such as the introduction of copper deposition and low-k dielectrics, have become so large and narrowly focused that they’re impeding the development of many other emerging technologies.

I have some understanding of the needs of smaller device manufacturers because one of our companies, ClassOne Equipment, has been selling refurbished equipment to them for over a decade. That is why we’ve now created a whole new company, ClassOne Technology, to provide new equipment at substantially lower prices specifically for 200mm and smaller substrates. We are introducing new electroplating systems, spin rinse dryers and spray solvent tools; and some of them are literally half the cost of high-end competitive units. We’re particularly interested in serving all those small- to mid-sized companies who are making MEMS, power devices, RF, LEDs, photonics, sensors, microfluidics and other emerging-technology devices.

However, no single company can solve the entire problem. There is a glaring need for equipment manufacturers to bring the price/performance ratio of their tools back in line with the needs of more of the equipment users, not just those at the bleeding edge. If the tool manufacturers persist in trying to only sell the equivalent of sports cars to customers who just need pickup trucks, America’s high tech industry may soon find itself trailing, rather than leading the innovation curve.

New approaches to start-ups can unlock mega-trend opportunities.

BY MIKE NOONEN, Silicon Catalyst, San Jose, CA; SCOTT JONES and NORD SAMUELSON, AlixPartners, San Francisco, CA

The semiconductor industry returned growth and reached record revenues in 2013, breaking $300 billion for the first time after the industry had contracted in 2011 and 2012 (FIGURE 1).

FIGURE 1. Worldwide semiconductor revenue. Source: World Semiconductor Trade Statistics, February 2014.

FIGURE 1. Worldwide semiconductor revenue. Source: World Semiconductor Trade Statistics, February 2014.

However, even with that return to growth, underlying trends in the semiconductor industry are disturbing: The semiconductor cycle continues its gyrations, but overall growth is slowing. And despite 5% year-on-year revenue growth in 2013 (the highest since 2010), the expectation is that semiconductor growth will likely continue to be at a rate below its long-term trend of 8 to 10% for the next three to five years (FIGURE 2). An AlixPartners 2014 publication , Cashing In with Chips, showed that semiconductor industry growth had slowed to roughly half of its long-term growth average since the 2010 recovery—with no expectation that it will return to historical growth until at least 2017. Other studies have also shownthat semiconductor growth has slowed not only relative to its previous performance but also versus growth in other industries. And a study conducted by New York University’s Stern School of Business[1] found that the semiconductor industry’s revenue growth lagged the average revenue growth of all industries and ranked 60th out of 94 industries surveyed. Surprisingly, the industry’s net income growth of semiconductor companies lagged even further behind—ranking 84th out of 94 companies surveyed—and had actually been negative during the previous five years.

FIGURE 2. Semiconductor revenue growth. Sources: Semiconductor Industry Association and AlixPartners research.

FIGURE 2. Semiconductor revenue growth. Sources: Semiconductor Industry Association and AlixPartners research.

In another study released by AlixPartners that looked at a broader picture of the semiconductor value chain, including areas such as equipment suppliers and packaging and test companies, the research showed that outside of the top 5 companies, the remainder of the 186 companies surveyed had declining earnings before interest, taxes, depreciation, and amortization (FIGURE 3).

FIGURE 3. Spotlight on the top five (fiscal year 2012). Source: AlixPartners Research.

FIGURE 3. Spotlight on the top five (fiscal year 2012). Source: AlixPartners Research.

As revenue growth slows, costs increase at a rapid rate

As semiconductor technology advances, the cost of developing a system on chip (SoC) has risen dramatically for leading-edge process technologies. Semico Research has estimated that the total cost of an SoC development, design, intellectual property (IP) procurement, software, testing has tripled from 40/45 nanometers (nm) to 20 nm and could exceed $250 million for future 10-nm designs(FIGURE 4) [2]. This does not bode well for an economic progression of Moore’s law, and it means that very few applications will have the volume and pricing power to afford such outlandish investment. If we assume that a 28nm SoC can achieve a 20% market share and 50% gross margins, the end market would have to be worth over $1 billion to recoup R&D costs of $100 million. By 10 nm, end markets would have to result in more than $2.5 billion to recoup projected development costs. With few end markets capable of supporting that high a level of development costs, the number of companies willing to invest in SoCs on the leading edge will likely decline significantly each generation.

FIGURE 4. Development Costs are Skyrocketing. Source: Semico Research Corp.

FIGURE 4. Development Costs are Skyrocketing. Source: Semico Research Corp.

What happened to semiconductor start- ups?

The history of the semiconductor industry has been shaped by the semiconductor start-up. Going back to Fairchild, the start-up has been the driving force for growth and innovation. Start-ups helped shape the industry, and they are now some of the largest and most successful companies in the industry. But the environment that lasted from the 1960s until the early 2000s—and that made the success of those companies possible—has changed dramatically. The number of venture capital investments in new semiconductor start-ups in the United States has fallen dramatically, from 50 per year to the low single digits (FIGURE 5). And even though that drop is not as dramatic in other countries — such as China and Israel — it is indicative of an overall lack of investment in semiconductors.

FIGURE 5. Number of seed/series a deals. Source: Global Semiconductor Alliance.

FIGURE 5. Number of seed/series a deals. Source: Global Semiconductor Alliance.

The main reason for the decline is the attractiveness of other businesses for the same investment. In the fourth quarter of 2013, nearly 400 software start-ups received almost $3 billion of funding, whereas only 25 semiconductor start-ups received just $178 million (representing all stages) (FIGURE 6). It seems that (1) the lower cost of starting a software company, (2) the relatively short time frame to realize revenue, and (3) attractive initial-public-offering and acquisition markets possibly make the software start-up segment more interesting than semiconductors.

FIGURE 6. Funding of software and semiconductor start- ups. Source: PwC, US Investments by Industry/Q4 2013.

FIGURE 6. Funding of software and semiconductor start- ups. Source: PwC, US Investments by Industry/Q4 2013.

This situation is unfortunate and has conspired to create a vicious and downward cycle (FIGURE 7).

  • Lack of investment limits start-ups
  • Lack of start-ups limits innovation
  • Lack of innovation and fewer start-ups limits the number of potential acquisition targets for established companies.
  • Reduced potential acquisition targets in turn limit returns for companies and returns for those who would have invested in start-ups.
  • Limited returns make future investments less likely and continue the cycle of less innovation and lower investment [3]. 
FIGURE 7. A vicious cycle limits innovation.

FIGURE 7. A vicious cycle limits innovation.

Therefore, it is reasonable to conclude that the demise of semiconductor start-ups is a contributing cause to the lackluster results of the overall semiconductor industry. And that demise and those lackluster results are further exacerbated by the rise of activist shareholders who demand a more rapid return on their investment, which possibly reduces the potential for innovation in an industry that has lengthy development cycles.

What about other industries?

It is tempting to think that the semiconductor industry is alone in this predicament, but other industries face similar challenges and have figured out accretive paths forward. For example, biotechnology has some of the same issues:

  • An industry that grows by bringing innovation to market 
  • Similarly lengthy development cycles 
  • Potentially capital intensive at the research and production stages

In addition, the biotech industry faces a challenge the semiconductor world does not — namely, the need for government regulatory approval before moving to production and then volume sales. Gaining that regulatory approval is a go-to-market hurdle that can add years and uncertainty to a product cycle.

However, in spite of its similarities to the semiconductor business and the added regulatory hurdles, the biotech industry enjoys a very healthy venture-funding and start-up environment. In fact, in the fourth quarter of 2013 in the United States, biotech was the second-largest business sector for venture funding in both dollars and total number of deals (FIGURE 8).

FIGURE 8. Funding of software and semiconductor start- ups. Source: PwC, US Investments by Industry/Q4 2013.

FIGURE 8. Funding of software and semiconductor start- ups. Source: PwC, US Investments by Industry/Q4 2013.

Why is this? What do biotech executives, entre- preneurs, and investors know that the semiconductor industry can take advantage of? There are several lessons to be learned.

  • Big biotech companies have made investing, cultivating, and acquiring start-ups key parts of their innovation and product development processes. 
  • Biotech and venture investors identify interesting problems to solve and then match the problems to skilled and passionate entrepreneurs to solve them.
  • Those entrepreneurs are motivated to create and develop solutions much faster and usually more frugally than if they were working inside a large company.
  • The entrepreneurs and investors are creating businesses to be acquired versus creating businesses that will rival major industry players.
  • The acquiring companies apply their manufacturing economies of scale and well-estab- lished sales and marketing strategies to rapidly— and profitably—bring the newly acquired solutions to market.

For several reasons, certain megatrends are driving the high-technology sector and the economy as a whole, and all of them are enabled by semiconductor innovation (FIGURE 9). Among the major trends:

  • Mobile computing will likely continue to merge functions and drive computing power.
  • Security concerns appear to be increasing at all levels: government, enterprise, and personal.
  • Cloud computing will possibly cause an upheaval in information technology.
  • Personalization through technology and logistics appears to be on the rise.
  • Energy efficiency is likely need for sustainability and lower cost of ownership.
  • Next generation wireless will likely be driven by insatiable coverage and bandwidth needs.
  • The Internet of things will likely lead to mobile processing at low power with ubiquitous radio frequency.
FIGURE 9. Global internet device installed base forecast. Sources: Gartner, IDC, Strategy Analytics, Machina Research, company filings, BII estimates.

FIGURE 9. Global internet device installed base forecast. Sources: Gartner, IDC, Strategy Analytics, Machina Research, company filings, BII estimates.

The Internet of Things megatrend alone will result in a tremendous amount of new semiconductor innovation that in turn will likely lead to volume markets. Cisco Systems CEO John Chambers has predicted a $19-trillion market by 2020 resulting from Internet of Things applications [4].

Does it really cost $100 million to start a semiconductor company?

The prevailing conventional wisdom is that it takes $100 million to start a new semiconductor company, and in some cases that covers only the cost of a silicon development. It is true that recently, several companies have spent eight- or nine-figure sums of money to develop their products, but those are very much exceptions. The reality is that most semiconductor development is not at the bleeding edge, nor is the development of billion-transistor SoCs.

The majority of design starts in 2013 were in .13 μm, and this year, 65, 55, 45, and 40nm are all growing (FIGURE 10). These technologies are becoming very affordable as they mature. And costs will likely continue to decrease as more capacity becomes available once new companies enter the foundry business and as former DRAM vendors in Taiwan and new fab in China come online.

FIGURE 10: .13um has the most design starts; 65nm and 45nm have yet to peak.

FIGURE 10: .13um has the most design starts; 65nm and 45nm have yet to peak.

Another thing to consider is whether a new company would sell solutions that use existing technology or platforms (i.e., a chipless start-up) or whether a company would choose to originate IP that enables functionality for incorporation into another integrated circuit.

A chipless start-up would add value to an existing architecture or platform. It could be an algorithm or an application-specific solution on, say, a field-programmable gate array, a microcontroller unit or an application-specific standard product. It could also be service based on an existing hardware platform.

A company developing innovative new functionality for inclusion into another SoC paves a path to getting to revenue quickly. Such IP solution providers would supply functionality for integration not only into a larger SoC but also into the emerging market for 2.5-D and 3-D applications.

In both situations (the chipless start-up and the IP provider), significant cost may be avoided by the use of existing technology or the absence of the need to build infrastructure or capabilities already provided by partners. In addition, those paths have much faster times to revenue as well as inherently lower burn rates, which are conducive to higher returns for investors.

Even for start-ups that intend to develop leading-edge multicore SoCs, a $100-million investment is not inevitable. Take, for example, Adapteva, an innovative start-up in Lexington, Massachusetts. Founded by Andreas Olofsson, Adapteva has developed a 64-core parallel processing solution in 28 nm. The processor is the highest gigaflops/watt solution available today, beating solutions from much larger and more-established companies. However, Adapteva has raised only about $5 million to date, a good portion of which funding was crowd sourced on the Kickstarter Web site. This just shows that even a leading-edge multicore SoC can be developed cost-effectively—and effectively—through the use of multiproject wafers and other frugal methods.

Several conclusions can be drawn at this point.

  • Even though the semiconductor industry is growing again, the underlying trends for profitability and growth are not encouraging. 
  • Cost development is increasingly rapid on leading-edge SoCs. 
  • Historically, start-ups have been engines of innovation of growth and innovation for semiconductors. 
  • In recent years, venture funding for new semiconductor companies has almost completely dried up. 
  • That lack of investment of semiconductor start-ups has contributed to a downward and vicious cycle that will further erode the economics of semiconductor companies. 
  • The biotechnology industry has many parallels to the semiconductor. Interestingly, biotechnology has a relatively thriving venture funding and start-up environment, and we can apply that industry’s successful approach to semiconductors. 
  • Despite the state of start-ups, it is now one of the most exciting times to be in semiconductors because most of the megatrends driving the economy are either enabled by or dependent on semiconductor innovation. 
  • It does not need to take $100 million to start the typical semiconductor company, because a great deal of innovation will use very affordable technologies, and come from chipless start-ups or IP providers that have much lower burn rates and ties to revenue.
  • Even leading-edge multicore SoCs can be developed frugally (for single-digit millions of dollars) and profitably. 


1. http://people.stern.nyu.edu/adamodar/New_Home_ Page/datafile/histgr.html

2. SoC Silicon and Software Design Cost Analysis: Costs for Higher Complexity Continue to Rise SC102-13 May 2013.

3. AlixPartners and Silicon Catalyst analysis and experi- ence.

4. Cisco Systems public statements.