In a recent webinar discussion, Wally Rhines talked about the future of the semiconductor industry and its prospects for recovery after Covid-19 and growth beyond, as and when the world normalizes. This article presents a summary of his thoughts during that session.
The global semiconductor and electronic design automation (EDA) industry is easily the bedrock of modern digital life. Right from our laptops, cellphones, and video games to washing machines, refrigerators, and cutting-edge robots, semiconductors silently enable us to lead more comfortable lives based on reliable technology.
Wally Rhines is a widely recognized leader in the semiconductor and EDA industry, shared fascinating insights at a talk in part of our CXO Cyience series. In conversation with me, here’s are some of his key insights.
Recovering from the Covid-19 pandemic
Even as the Covid-19 pandemic continues to surge across the globe, the semiconductor industry is sustaining itself and is well poised to bounce back for growth in the post-Covid era. The semiconductor industry had a weak year in 2019 because of the drop in memory prices, and it will continue to slow down a little more this year. But even then, the impact on employment within the industry has been relatively minimal.
Recovery in the semiconductor industry will be driven by anticipated demand in the automotive and communications industries. The upcoming 5G technology promises to provide growth impetus. 5G devices and mobile phones have a much higher semiconductor component than their predecessors, especially the RF part. This will help industry offset the decline from the 4G mobile devices business. In fact, today, nearly 40% of the semiconductor industry’s revenue of $2.5 trillion comes from the communications industry.
Another business vertical likely to make a significant contribution to the semiconductor industry’s growth in the post-Covid-19 era is the automotive sector.
While the pandemic might delay the introduction of multi-passenger autonomous vehicles and robotaxis, the sheer number of firms in this sector will only provide a growth stimulus. Around 500 companies have announced that they will develop electric cars or light trucks, and 277 companies announced that they would work on autonomous drive programs. All this bodes well for the semiconductor industry as these firms will need to design and develop electronics.
Even so, some factors do put a question mark on this promised growth in the automotive industry. To begin with, not all 500 electric car companies are likely to survive. Secondly, the price of the car is not increasing, so this means that firms might be forced to bring down the cost of other elements to afford more electronics. However, the encouraging part for semiconductor firms is the introduction of a new chip architecture that offers great potential for autonomous drives and other capabilities.
Growing focus on research
The semiconductor industry’s commitment to focus on research is one of the key factors why the industry can sustain itself even during challenging times. The industry spent as much as 14% of its revenue on the research and development of new products in the last 35 years, even though there have been periods of low revenue growth.
The semiconductor business is powered by rapid technological changes which demand high R&D investment. Today, the prevailing thought within the semiconductor industry is that the Covid-19 pandemic will be over some day, and when it is does, it will need new leading-edge products.
Somer crystal ball gazing
During the talk, Wally Rhines also shared several of his expert observations and analysis from his recently published book, Predicting Semiconductor Business Trends after Moore’s Law. Some of his findings follow.
The silicon transistor market will continue to grow for a long time
Invented in the 1950s, silicon transistors continue to power several modern appliances and use cases. Rhines uses the Gompertz curve or S-curve to predict how long silicon transistors will be around. He suggests the world is still in the infancy of the silicon transistor trajectory, and this segment will witness an increasing growth rate until 2038. Even though the pace of growth will slow down after this, the industry will continue to grow for a long time.
A growth paradox
The market share of the top 50 semiconductor companies continues to reduce over the last decade, even when the industry continues to grow. The growth in the semiconductor industry is based on the emergence of new innovations every few years. For instance, it was microprocessors in the 1980s, system on a chip (SoC) in the 1990s, and fabless semiconductors more recently. So, every innovation brings in new companies at the forefront displacing the incumbents. Texas Instruments (TI) is one of the few companies that have managed to remain at the top 10 throughout the period.
Even though TI stayed in the top 10, it was not always profitable. Only recently, when the company started focusing on analog and power devices, it turned profitable. In fact, TI was declared the most profitable company globally with 41% operating profit, and they continue to be highly profitable through specialization.
Surge in investment in fabless integrated circuit firms
Rhines also spoke about the rejuvenation of venture capital investments in fabless integrated circuit companies. The dramatic growth in investment started in 2017 and set a new record of $3.5 billion in 2018. The need for a new computer architecture is one of the primary factors that drive this growth since the emergence of artificial intelligence (AI) led to a demand for computers based on neuromorphic computing, which enables machine learning.
The semiconductor industry is fascinating in all its complexities—the development and innovations in this sector promise to shape and transform various aspects of modern-day living. The industry has even enabled us to develop things we could not have imagined a few years back. In this context, it is vital to understand how past and present trends will shape the future of the semiconductor industry.
Suman Narayan heads the semiconductor, IoT & analytics and medical technology and healthcare business units at Cyient. In over 20 years of experience he has served in various leadership roles at ON (Fairchild) Semiconductor and Texas Instruments. In his last role at ON Semiconductor, he served as VP and GM of the company’s intelligent power module business, growing cloud servers, and high-performance computing. Prior to that, he was with Texas Instruments for over 18 years, where he was instrumental in incubating and launching the motor driver business. He was also responsible for the embedded processor business based on ARM and digital signal processors (DSP) ICs, embedded software for IoT, video streaming, and automotive.