The semiconductor industry is clearly on a full recovery path from the 2008-9 downturn. According to iSuppli, semiconductor spending among OEMs will post double-digit increases during 2010. The world’s top 20 OEMs are predicting an increase in semiconductor spending to about $178 billion this year, a 13% increase from the $157 billion spent in 2009. The top 20 companies will account for $104 billion—about 58% of all semiconductor spending worldwide.
So a recovery is clearly underway. But what kind of recovery should we expect?
When executives were asked what shape they expect the recovery to resemble, the responses varied widely. One-third believes the recovery will be in the form of a W. This group foresees a dip after the current initial upward bounce. Other executives feel the shape will resemble a U, a V, a square root, or even a very depressing L.
Being something of a contrarian, I place myself into the 2% “other” category. I call it the “Bell swoosh recovery scenario.” I believe that the strong semiconductor industry recovery will continue, but will eventually taper to a more normal growth rate by the end of 2011. I expect the eventual “normal” growth rate will be approximately 7% to 8% annually at the end of 2011.
Let’s take a look at the phases of this downturn and recovery.
First was the crisis during the fourth quarter of 2008 when the entire global economy fell off a cliff. This was an extremely abrupt drop—Intersil and other semiconductor leaders came in with almost no bookings in December 2008. Following this precipitous drop came the recovery of demand, starting at the end of the first quarter of 2009. Demand for electronics suddenly seemed unstoppable, as consumers appeared to refuse to live without new TVs, computers, cell phones, MP3 players, and many other types of electronic devices. In fact, I believe that many people sacrificed food—eating macaroni and cheese or rice—just so they could buy a new Apple iPhone. Maybe consumer electronics products should be added to psychologists’ list of the top human priorities, along with food and shelter. For many consumers, electronics products have gone from nice-to-have to essential.
The third phase, the period in which new market drivers take hold, is where we are now. Among other drivers, I see three significant examples that are leading the recovery.
First is video. Video use is exploding. People are finding all kinds of inventive ways to use this technology. When I say video is everywhere, I mean everywhere. One innovative example is a regulation size and weight soccer ball with a tiny embedded camera and rechargeable batteries. The ball is obviously pretty rugged to survive on the soccer field, with the ability to transmit video over an RF link, and software image stabilization for a consistent video stream. It’s just one example of a world tied together by millions of people making and sharing videos of their day-to-day experiences, which is obviously happening in industrialized nations today.
Now this trend is spreading to the more remote parts of the world, such as Swaziland, Africa, where school children are learning how to use Flip video cameras. Like kids everywhere, they are quick adopters of new technology and it’s exciting to see. Another indicator of the explosion of video is the growth of YouTube and other popular video sites. When everyone has a video camera, YouTube, which is only five years old, turns into the world’s online TV station.
In the US alone the video statistics are staggering: 84.8% of the Internet audience has viewed online videos. The average viewer spends 12.2 hours per month watching video. The average length of an online video is now four minutes.
The bottom line is this: there are rapidly increasing numbers of people creating more video with more types of cameras than ever before, and the demand for video is driving the need for vastly expanded bandwidth capability. Cellular networks that were built to carry only voice are now being strained to carry photos and video. The iPhone alone has driven a 5000% increase in traffic on AT&T’s network since early 2006, and total traffic has increased with each new generation of iPhone. This rapid expansion will continue as video applications proliferate and help drive the semiconductor market forward.
A second major trend contributing to market expansion is security. Surveillance systems are being installed in factories, stores, offices, and even homes. Different kinds of systems are being developed to meet threats that were unimaginable even a few years ago. The numbers are impressive: IP video surveillance sales are expected to increase by 200% between 2010 and 2012, making security a significant growth sector. Like it or not, our world is becoming filled with security surveillance cameras, providing a real opportunity for leading IC developers.
A third market driver is power, specifically, the need for new power IC technology that enables reduced power consumption in virtually any application. The urgency of lower power consumption is effectively turning the old saying “money is power” on its head. In the IC market, “power is money.” Every application, from notebooks and handhelds to data centers and smart grid designs, needs smarter power management.
The name of the game is conserving power in everything from huge data centers to the smallest household appliances, to battery-operated devices like notebook computers. The rate of increase in power requirements demands innovative solutions. For example, data centers now consume about 2.5% of total energy use in the United States, and as of 2009, data center energy consumption was rising at the rate of about 12% per year. This figure will continue to climb rapidly as the mobile Internet, cloud computing, and video content increase.
These three exciting, innovative market drivers support my believe that we’re in for a couple of years of recovery in the electronics business. Growth will continue to be robust, but with gradually reducing slope in the shape of a “swoosh.” As I look ahead, I see a bright future for our industry, and for Intersil.
Dave Bell has served as president and CEO of Intersil since February 2008. Prior to that, he was President of Linear Technology. Bell holds a Bachelor of Science degree in Electrical Engineering from the Massachusetts Institute of Technology.