The Two Percent Solution

December 18, 2002

Jim Turley-December 18, 2002

The Two Percent Solution
Processors make up only a small percentage of semiconductor volume, yet they generate most of the revenue. Jim explains why.

Embedded systems design is a quantitative job, so let's take a quantitative look at the semiconductor business that keeps us employed. From humble element 14 on the periodic table to a multibillion dollar global industry, the sheer number and variety of semiconductors is astounding. Ounce per ounce, processed silicon is more valuable than gold.

About 60 million transistors were built this year just for you, with another 60 million for each of your friends, plus 60 million for every other man, woman, and child on Earth. By 2010, the number should be around one billion transistors per person per year.

The entire world market for semiconductors will finish up at around $150 billion this year. That's down from $204 billion in 2000 but better than last year. That much cake works out to $12 billion per month-or $400 million per day. Coincidentally, $150 billion is about the amount of all the U.S. currency in circulation.

The top 10 U.S. airlines combined took in only half as much money last year as the world's semiconductor makers. Intel and Texas Instruments sold more than Coca-Cola and Pepsi. Every single one of the top 15 corporations receiving the most patents in 2000 was in the semiconductor or computer business. Most importantly, a kid's PlayStation 2 has more computer power than NASA had for its moon landings.

Getting charted

Not all of this silicon goodness falls into the hands of embedded programmers, of course. Resistors, diodes, individual transistors, and the like are numerous. There are also optoelectronic components like the laser diodes in CD-ROM drives and fiber-optic networks. Embedded components, sure, but not something the average programmer ever comes in contact with.

The chart in Figure 1 breaks out the global semiconductor business into some broad categories of components. I've drawn each segment in proportion to the amount of money it generates, not the number of pieces produced or sold. The raw data for this and other charts (as well as the figures I mentioned in the opening) come from World Semiconductor Trade Statistics (www.wsts.org).


Figure 1: Semiconductor revenue breakdown

The "analog" segment of our chart includes all sorts of standard and application-specific linear components: D/A converters, amplifiers, voltage regulators, and so forth. "Discrete" includes single transistors, diodes, resistors, and miscellaneous Radio Shack stuff. The remainder is all digital componentry: memory, logic, and processor chips. We'll slice into the processor segment in a bit.

Logic and memory chips each do about $25 billion a year in business, and here "logic" includes ASICs, gate arrays, FPGAs, PLDs, and other custom or semi-custom digital chips. Memory is pretty self-explanatory; it includes the usual suspects: DRAM, SRAM, flash, EPROM, and so on.

The money's not in volume

The biggest chunk of the digital business comes from processors, which is only fitting and right. Processors grease the wheels of trade to the tune of almost $50 billion per year, generating nearly as much cash as all the other kinds of digital chips put together. Thirty percent of the world's semiconductor sales come from microprocessors, DSPs, microcontrollers, and programmable peripheral chips. Figure 2 shows the ratios.


Figure 2: Semiconductor units and revenue by type

So they must sell a lot of processors, right? Guess again. All the world's processors combined-and here I'm counting everything from the Pentium 4 to a 4-bit controller-make up only a wee slice of the quantity of semiconductors sold. A tiny 2% sliver of the market is all that processors contribute, but they generate a whopping 30% of the dough. Is it any wonder so many companies want to get into the microprocessor or DSP business?

Zooming in on that little 2% sliver, the balance gets even more lopsided. As Figure 3 shows, 8-bit chips are the best-selling type of processor, by far. Those little ol' 8051s and 6805s are flying off the shelves at the rate of more than 3 billion new chips per year. But they're not very expensive, so even though they're more than half of the units, they're less than 15% of the fiscal tonnage.


Figure 3: Processors and sales by type

At the opposite end of the scale are-big surprise-32-bit microprocessors. This category includes PC processors like Pentium 4 and Athlon, of course, but also dozens of embedded processors such as PowerPC, 68k, MIPS, and ARM chips. In fact, most (98% or so) 32-bit processors are used in embedded systems, not PCs. Embedded 32-bit chips have outsold PC processors every year by a wide margin. ARM-based chips alone do about triple the volume that Intel and AMD peddle to PC makers.

Taken as a whole, the average price for a microprocessor, microcontroller, or DSP is just over $6. Sound cheap? It would be a lot cheaper if not for a certain PC processor we can all name. Intel's going price for the latest Pentiums is about $300, or about 50 times the average. No mean feat, that. England in the 1800s had a tax on windows; apparently that practice has resurfaced in our times. Even though PC processors are just a tiny fraction of all the processor chips sold, they have an inordinate effect on our statistical average price. It only takes one elephant in the swimming pool to raise the water level quite a bit.

Let's review. Processors are only 2% of all semiconductors, and PC processors are only 2% of all processors. But processor chips generate about 30% of all the money, and PC processors are 50% of that. So 0.04% of the parts haul in 15% of the cash! That's two orders of magnitude and a factor of four difference. That's some serious leverage. It's as if Lotus (the car company) made more money than Toyota.

Stated another way, Pentium rakes in 15% of all the money made from every type of semiconductor from every company everywhere in the world.

This is where you come in

Statistics is a zero-sum game, so who's getting the short end of the deal? Predictably, it's the makers of resistors and capacitors. These discrete components make up 69% of the semiconductor body count but only 9% of the booty. The shipping cartons might be as valuable as the components.

In the processor arena, it's the 4-bit microcontrollers that are the cheapest. No surprises there. DSPs uphold the average, at right around $6 per chip, but that includes a lot of inexpensive hard-wired modem chips and the like. The world spent less than $5 billion on DSPs this year (about what Americans spent on perfume.)

Where does all this silicon go? As Figure 4 shows, the bulk of it (measured in dollars) goes into computers. That's no surprise; PC processors are expensive and PCs and workstations need lots of memory chips, core logic, and graphics accelerators. After computers comes communication equipment, where a lot of DSPs and optical components wind up, not to mention a dozen new breeds of network processors.


Figure 4: Where do all those chips go?

The automotive sector is a fairly modest user of silicon, accounting for only about 5% of demand. But that's still more than $7 billion worth of low-end and high-end components, and it's growing fast. The average new car already has a dozen microprocessors in it; BMW's new 7-Series has more than 65.

So why the huge difference between microprocessors' effect on the economy and their comparatively tiny numbers? That, Gentle Reader, is where programming comes in. Processors are the only semiconductors that give a [suitable vulgarity] about software. Diodes, converters, and EPROMs can be replaced with equivalent hardware devices. As long as they fit the socket and meet some basic criteria, they're interchangeable. They are, in a word, generic. Commodities. Cheap.

Not so for processors. CPU chips aren't any harder to make than DRAM chips. They don't cost more-they're just priced that way. You can't swap out your CPU for just any other processor. Fitting it into the socket would be the easy part; translating code is the real problem. Marketing dweebs call that a "barrier to entry" and it's what keeps processor prices so high. We're hooked, addicted, and as long as our vendor keeps supplying more CPU fixes on a regular schedule, we'll stay loyal and not stray. But are the CPU vendors servicing us or are we servicing them? The value in this equation is the software, not the silicon.

Still, it's a happy symbiosis. If nothing else, it's nice to know that programming work provides a lot of the value in that global equation. Have you had your 60 million transistors today?

Jim Turley is an independent analyst, columnist, and speaker specializing in microprocessors and semiconductor intellectual property. He was past editor of Microprocessor Report and Embedded Processor Watch. For a good time, write to info@jimturley.com.

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