Do IC makers need auto market frustrations?

PARIS — Idon’t think I’m alone in wondering why anychip company these days would stay in theautomotive electronics market.

Let’s face it. Carmakers are notorious forbeating up semiconductor suppliers overpennies. They demand high-standard,“automotive quality” for every IC theyprocure. These chips need to last longerthan cars, which means a very long productlife cycle is required for every automotivechip.

Carmakers say they need innovation, and yetthe typical automotive product developmentcycle is about five years. In most otherindustries, the whole world — oftechnology, market trends, consumerpreferences, and pricing — changes withinthree years.

To top it off, automotive doesn’t exactlyoffer either the fastest growing or thelargest volume market for semiconductorcompanies.

So, why stay?
At the European Microelectronics Summit herelast week, Ian Riches, director of globalautomotive practice at Strategy Analytics,concluded that “mainstream automotive isstarting to look less attractive to somesemiconductor vendors.”

Comparing the car biz to the mobileindustry, Riches pointed out that it takesmore than five years to develop a new model,while the development cycle for a mobilehandset is two years. A car’s lifetime isabout eight years, while a smartphone lastsonly 1.5 years. Perhaps, the only positivefor automotive chip suppliers is that thesemiconductor content in a car is higher invalue. He estimates some $1,000 worth ofelectronics content inside a car, comparedto about $130 per smartphone. But of course,the volume of global car sales totally paleswhen compared to mobile phones.

Automotivesemiconductor demand ($ billion)

Source: Strategy Analytics

Source:Strategy Analytics

The case for chip companies to stay in theautomotive market has two solid arguments.The first is the strong growth in advancedsafety application. The second is thecontinued development of hybrid electric(HEV) and electric vehicles (EV).

In fact, automotive is a “stabilized”market, said Riches, with its overallsemiconductor demand (in value) growing at asteady pace of 7 percent every year –between 2012 and 2017.

Of the total auto semiconductor market, thebiggest market driver is Advanced DriverAssist Systems (ADAS). Strategy Analyticsforecasts ADAS chip demand reaching $3.5billion in 2020. If this comes true, roughly10 percent of the automotive chip marketwill be generated by ADAS by then. TheCompounded Average Annual Growth Rate(CAAGR) for ADAS is 23 percent from 2012through 2017, according to Riches.

EV hype bubble bursts
Strategy Analytics similarly pegssemiconductor demand for HEV/EV to become aslarge as $2.6 billion in 2020, with its2012-2017 CAAGR at 22 percent. However,Riches acknowledged that growth in “the EVend of the HEV/EV market is less certain.”

“The hype bubble has now burst,” he added.There have been already some significantfailures in the EV market.

But ignoring the EV trend is the worstmistake the electronics industry could make.“The main danger now is to underestimate thelong-term importance of vehicleelectrification,” he warned. The energyshift towards greater electrification is“beyond question,” he noted. What’sdebatable is “the speed of travel,” headded.

To read more go to “Hybrid and EV sales.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.