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Thursday, July 29, 2010

It’s a Growth Industry…Again

I should be the last person who needs reminding that the semiconductor industry is a growth industry. But then again, I’m not only one who needs reminding.

The chart below from Bill McLean of IC Insights illustrates the underlying, long-term strength of our industry. To use his terminology, “demand never dies, it is only deferred.” From 99-04 (including the dot com crash) chip unit volume increased 9.5%, from 05-07 the market grew 14%, since 2008 a 10% trend line is appearing. Chip revenue growth is also firmly in the growth category. In the 90’s, it grew an average of 14%; from 2001-2007, it grew 9%. This year expectations are that revenue growth will be 28-30%. Industry analyst, Jim Cavello of Goldman Sachs said many times during SEMICON West, “chip growth may go up and down, but it averages 10%.” World GDP growth averages from 2-4%, chip have been more than double that, and will be for as long as we can see.

Rick Hill, CEO of Novellus recently told EETimes, "The way we see the semiconductor industry today is a lot like it was back in the mid-90s," Hill said. "There were fundamental drivers driving the business upward, as opposed to the mid-2000s, where it was more of supply-driven expansion in the industry for semiconductors."

He said that the three main growth drivers in the 90’s were infrastructure, fear uncertainty and doubt (FUD), and the PC and similar forces are at work today. Key forces driving demand today, according to Hill are, Windows 7 and telecom infrastructure, cybersecurity (FUD) and shifting consumer demand (primarily China and India).
My opinion is that there are no longer any dominant growth drivers; there are many growth drivers. There are mobile phones, ipods and ipads, TVs, cameras everywhere, smart autos, smart homes, smart everything . It’s ubiquitous, pervasive demand for all things digital. It’s like food and water—growing with human progress—but a growth industry because chip content in nearly everything that touches our lives is increasing. Its not only about lifestyles, its about life itself as semiconductor technology is embedded in cleantech and climate change mitigation in things like solar panels, smart meters, solid state lighting, and electric cars. We need semiconductor technology not only to live well, but to live period.

Now, the reason we need reminding that we work within an exciting growth industry is because of the mega trends and forces that always seem like they are trying to overwhelm us. One of the trends is super-cyclicalality. It’s hard to enjoy the good times when we’re either recovering from the last slump or anticipating the next one. Another reason is the hyper competiveness of the industry. If you’re not essential—as a person, as a product or company—you’re gonna get optimized out. There’s no room for softness or second best. The industry has been bred to seek and destroy inefficiencies, whether they are costs, process steps or people. We’re a paranoid industry, said Andy Grove, always fearful of the slump, the next cut, the next innovation, or the next big thing.

We may be a growth industry, but sometimes we sure don’t feel like it.

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