Qualcomm CEO Dr. Paul Jacobs gave the opening keynote speech on Tuesday, January 10^th.  During his presentation he invited Liu Jun, President of Lenovo mobile internet and digital home group on stage for an announcement from Lenovo.  Jun proceeded to demo his company’s SmartTV that is being powered by Qualcomm’s snapdragon SoC. The TV is currently only available in China but what I found interesting was that Lenovo was expanding its product line into the consumer’s living room. It’s also a feather in Qualcomm’s hat, as it expands Qualcomm’s market penetration into televisions.

Several hours later at an afternoon keynote speech Intel’s CEO Paul Otellini also brought out Liu Jun, from Lenovo for an announcement. Liu Jun proceeded to announce that Lenovo would be producing a smart phone powered by Intel’s atom. Yet another market that Lenovo is continuing to expand into.  And what a great win for Intel.  They’ve been targeting the atom processor for smart phones and now they not only have Motorola, an established player in the cell phone market, but they also have a partner with a built in connection to the China market.

After listening to both keynote presentations, I was struck by the thought that Lenovo has been quite clever in their interactions with processor semiconductor companies. Lenovo has chosen the underdog for both of its announcements. Intel which has not successfully penetrated smart phone market is now going to supply one of the world’s largest OEMs a smart phone processor. Likewise Qualcomm is not the leader in TV processors. This design could open the door for Qualcomm to expand into the broader consumer market.

In the back of my mind I thought how clever for Lenovo to avoid selecting the number one vendors for each application.  Semico believes this is good for the market. It will most likely increase a healthy competition for these sockets.  Was their decision risky? I don’t believe so; both companies are highly successful in the markets they serve.  These design wins give an expanded beachhead for both Intel and Qualcomm into expanded markets both by application and by geography.  Semico congratulates Lenovo for its new products and for fostering continued innovation in the semiconductor industry.

-Jim Feldhan, President

Here at Semico we already have two employees with plug-in electric vehicles. (We only have 10 employees.)  I just recently acquired a Chevrolet Volt and our CTO, Tony Massimini, purchased a Nissan Leaf. Both cars have their unique advantages and disadvantages.

The Chevy Volt is nicely designed, well put together, with a solid feel and good crisp handling. From a performance standpoint the Volt’s electric motor is comparable to a 250HP internal combustion engine with 273 pound-feet of torque.  This rating is benchmarked at all RPMs. The single speed electric motor eliminates the transmission contributing to a simpler design.

The Chevy Volt has a 16 kW battery of which 10 kW is dedicated to the all-electric propulsion.  The remaining 6 kWs is a buffer for use during the extended range mode and for redundancy to ensure long battery life.  The battery life is rated for 100,000 miles.

One of the features that I found especially efficient is the car’s regenerative braking system.  It takes some of the energy from the moving vehicle and turns it back into electrical energy.  This energy is then stored back into the high voltage battery contributing to increased energy efficiency.  The braking system is computer controlled and blends the regenerative braking with the conventional hydraulic disk brakes.  The controller interrupts the braking request and uses regenerative braking, conventional hydraulic or a combination of both to ensure effective braking while saving energy.

The Chevy Volt can also boast an industry first.  It is the only electric vehicle with a liquid cooled battery.  The unique feature is a lithium ion battery that is immersed in a liquid coolant which maintains the battery’s temperature between 60º F and 80º F during charging as well as discharging. The Nissan Leaf has an air cooled battery which does not have the capability of maintaining the battery temperatures at optimal levels.

So far I have been able to drive 38 to 50 miles on one charge using the 10 kWs from the battery.  After the 10 kWs are consumed the electric generator kicks on to operate the vehicle.  During deceleration the battery will recharge.  Depending on driving conditions the car will switch back and forth from battery to the generator as needed.  I’ve been driving the car for about one month and so far I’ve gotten 42 miles per gallon after the first 40 electric miles.  That means the total range for the vehicle could be as high as 400 miles.  I haven’t tested the full range yet.  Since I’ve only had the car for less than a month, most trips have been well under 40 miles and I’ve rarely used the gasoline generator.

Another great feature of the Chevy Volt is the on-the-fly switchable driving mode which includes: normal, sport and mountain. The normal mode provides the most efficient use of energy and the longest range for the battery. The sport mode provides quicker acceleration and consumes the stored energy quicker. The mountain mode provides additional electricity to the motor when driving through mountainous terrain. It is recommended that drivers should utilize this option 30 minutes prior to entering the mountainous terrain.

The Nissan Leaf has a 32 kW battery with a less powerful electric motor and no onboard generator with a 98 mile electric range. Like the Chevy Volt, the Nissan Leaf is well put together, quiet and stylish.

I have read several articles warning people not to buy plug-in electric vehicles citing the large initial cost and the potential for a much higher electric bill. I always wonder who’s behind those articles.  Could they be shills for the oil companies? The increase in a monthly electric bill doesn’t even come close to the monthly cost of gas, even compared to the most efficient combustion engine vehicle.

So let’s talk dollars and cents.

The current standard electric rate in Arizona is $.105 per kilowatt hour. If a homeowner opts for a time-of-day rate, the off-peak rate is $.06 cents a kilowatt hour and there is also a super saver rate for electric vehicles of $.035 per kilowatt hour. For this analysis, let’s just use the standard per kilowatt hour and the super saver rate which is 11:00PM to 6:00AM.

My last 110 miles in the Chevy Volt consumed 24.7 kW.  Multiply that times the $.105 per kilowatt rate and the result is a total cost of only $2.59 or an electric cost of $.0235 per mile. Compare that to an internal combustion vehicle that gets 40 miles to the gallon, one would consume 2.75 gallons to drive the same 110 miles. The cost for that gasoline ($4.00/gal) would be $11.00 which is $.10 a mile. So after 50,000 miles the gasoline powered vehicle would consume $5,000.00 in gas, while the electric cost would equal $1178.86 on the standard rate and $392.95 on the super saver night rate.

While the initial price of electric vehicles is higher than a standard gasoline powered vehicle there are savings in the operational costs and most likely in the maintenance.  And of course, there’s the added benefit of knowing I’m reducing our dependence on foreign oil and making my small contribution to the environment.  It’s definitely a good feeling.  I can say that I am happy that this technology remained in the US and did not end up in China. After driving the Chevy Volt for a month, I believe the Federal government made the right decision to give GM a loan which they are paying back with interest. GM has reinvented itself and is producing state-of-the-art technology vehicles like the Volt and the best-selling compact car, the Cruze.

Jim Feldhan

President

• Approximately 100 tablet models are being introduced this year, each with a market share goal of more than 1%.  There will be winners and losers.  The result will be excess capacity and inventory in the channel as these models shakeout. In terms of semiconductor ASP’s, the supply chain only has to be few percent points out of equilibrium to cause prices to crash.  We’ve seen it in the memory market many times.
• The smart phone is considered the “promise land”. A market that continues to grow at double-digit rates with increasing semiconductor content is an irresistible market. However, there is a similar threat in the smart phone market.  Overbuilding of smart phones will result in a production pullback in 2012 contributing to excess capacity and inventory leading to falling ASP.

While we would expect a semiconductor downturn to produce negative semiconductor revenue, Semico has identified several factors that will dampen the severity of the downturn.

• The devastation in Japan from the earthquake and the tsunami left heavy damage in northern Japan. A number of production facilities were severely damaged.  Renesas was one of the company’s hardest hit. In addition to plant closures, the Japanese automotive manufacturers have substantially reduced production rates.
• Some consumer products, particularly games and TVs are in a similar situation.
• Although this is bad news for the affected companies and potential revenue for 2011, Semico believes that there will be pent-up demand that will roll into 2012 helping to mitigate the downturn.

Other positive factors affecting 2012 include:

• A continuing growth in Internet activity and cloud computing is spawning a wave of upgrades in the communication back bone and server farms.
• The build-out of 4G wireless networks will require substantial investment that will spur demand from 2012 through 2015.

Jim Feldhan,

President

As of today, there have been two explosions.  An explosion shattered the building housing the nuclear reactor on Saturday.  Although government officials are claiming that the metal containment vessel surrounding the reactor is still intact, clearly the situation is getting worse, not better.  Rods have been exposed twice, resulting in a partial meltdown.  At this point, the best case scenario will be to stop the nuclear reaction, cool the facility down, encase it in concrete, and abandon the facility.  This would leave Sendai in an electricity deficit from the closure of 3 to 5 reactors.  This certainly will cause some problems for the semiconductor and related manufacturing facilities in this area as they are electric power hogs.

Heavy damage is reported within a 200 km radius of Sendai.  One of Japan’s largest oil refineries is on fire.  There were reports of multiple fires in Tokyo which is almost 200 miles from Sendai.  Gas lines in the area have also been severed.

Japan is a significant producer and consumer of semiconductors.  In addition to memory products such as NAND flash, Japan is the largest supplier of discrete devices, including such products as power MOSFETs.  These products are used in all electronic devices; NAND flash is a key component for many consumer and communication products.  A small disruption in the supply chain can cause significant upward pricing for at least a limited timeframe.

The Semico Fab Database lists over 100 fabs in Japan.  Freescale has a fab in Sendai, although our records indicate the company intends to close the Sendai fab by the end of this year.  The fab produces microcontrollers and sensors.  Renesas seems to be enduring the most impact as they maintain several fabs in the Tokyo area.  The company has closed several fabs indefinitely.  Renesas is a major microcontroller supplier.  Toshiba, a key NAND supplier, maintains their Flash Alliance and Flash Partners fabs in Yokkaichi in the Mie Prefecture over 200 miles south of Tokyo.  While Toshiba shut down a number of fabs for inspections, they are now back in production. Toshiba is SanDisk’s main manufacturing partner.  Most of the other semiconductor fabs are located in the southern regions of Japan.

Many fabs halted production as a result of the disaster.  Financial impact would include any equipment damage and loss of work in process.  Companies will assess any damages and will most likely resume production based on availability of reliable electricity.  Rolling blackouts could be the biggest challenge running wafers through the fab.

In addition to electricity supply, there was some concern over the future supply of silicon wafers.  ShinEtsu and SUMCO both maintain facilities in Japan and supply a significant portion of the silicon wafers used in the worldwide production of semiconductors.  Many of the large manufacturers have released statements indicating no issues relating to silicon wafer supplies.  Wafer production at some facilities has resumed as the companies work around the rolling blackouts.

Semico believes the quake may have significant impact on Japan’s semiconductor production this quarter but the impact should be minimal as it relates to total world production for the year.

The good news is that it is early in the year, and there is still time to recover for the peak production months of electronic products that typically occur in the second and third quarters of each year.  Towards the end of last year, inventories were starting to grow, and there was a concerted effort by companies to reduce inventory levels.  It would now appear that a little bit of excess inventory in products that come from Japan will be a windfall for those companies.

There could be a short term positive impact for GLOBALFOUNDRIES.  Companies may review the vulnerability of their foundry supply partners susceptible to earthquakes.  GLOBALFOUNDRIES’ multiple fab locations is a definite plus.  But our memories are short.  Even after the 1999 earthquake in Taiwan, companies continued to utilize the foundries in Taiwan.

Japan is a significant consumer of semiconductors.  According to SIA/WSTS data, Japan accounted for 19% of total worldwide discrete sales and 14% of total IC sales.  This represents Japan’s semiconductor consumption and has significant impact on production of electronic systems.  Production of automobiles, consumer electronics and certain industrial parts for aircraft and heavy equipment could be delayed.

Jim Feldhan, President

Joanne Itow, Managing Director

Adrienne Downey, Director of Technology Research

Speculators and  the uncertainty in the Middle East have once again fueled oil prices to its highest levels since 2008.  While Libya only contributes 2% to the global crude oil production it is a major regional player. Libya is Africa’s third-largest crude producer and has the largest oil reserves in Africa, approximately 44 billion barrels. The world consumes 87.5 million barrels of oil per day.

Today crude oil hit $92 a barrel on the New York Mercantile. Brent crude hit $106 per barrel on the ICE future exchange. As these price increases work through the supply chain we expect to see gasoline prices continue to rise. World economies continue to gain momentum and energy consumption is expected to increase. Don’t be surprised if gasoline hits four dollars a gallon in the U.S. this summer. As long as the price of crude oil does not reach $150 a barrel, Semico believes the economic recovery will continue.

As for semiconductors, higher energy prices are always a concern as products have to be moved around the world from production to assembly to store shelves. Semico’s IPI index has been declining since midyear 2010 raising our worries about the strength of the semiconductor market in the second half 2011. There continues to be much excitement around new entries into the tablet market, android-based cell phones and increased capabilities of the wireless network with 4G deployment. We continue to be cautiously  optimistic that the semiconductor market will show 8% growth in 2011 and expect 2012 to be the year when the semiconductor industry actually side steps a major downturn and will experience a soft landing.

Jim Feldhan, President

Essentially, we are changing the way we live. In order to provide the functionality that consumers want, new electronic devices are smart, connected, and always on. We are demanding more bandwidth and more storage. This ‘connected’ phenomenon is driving a new round of upgrades to the Internet infrastructure. This includes server farms and fiber-optic highways. In addition to the tsunami of consumer electronics, businesses are finding ways to use these products to make business operations more efficient.

Semico Research sees the semiconductor industry entering a new frontier. But it’s not just the semiconductor industry that will benefit. The entire supply chain can reap the benefits of the last several years of research and development. The Semico SUMMIT is the industry’s premier executive level conference that will focus on this changing electronics landscape and how to take advantage of the change. A company’s ability to understand and prepare for the upcoming ‘new frontier’ may result in its viability and profitability as the frontier reveals itself. This is an event no executive should miss.

This is the same forecast number that we’ve had for several months. The real question that everybody is asking now is, how does 2011 look? Our monthly inflection point indicator still points to a healthy first half. Check out our IPI report (sent to subscribers on Friday, Oct. 1) for more information on the third and fourth quarter. We believe 2011 will produce a 9.5% growth for industry revenues. The semiconductor industry will exceed the $300 billion mark for the first time in history!

While the US economy may still appear to be on shaky ground, the recession has ended and economic strength is slowly improving. However, it will continue to take some time for the macro-economy, including employment, to log significant gains. But don’t let the employment numbers fool you. The new consumer buying patterns have changed with electronics on the top of everyone’s wish list while cars and houses have dropped significantly. Furthermore many of the other economies around the world in countries such as China, India, Brazil, Taiwan and Korea are showing sustained strength and growth.

Jim Feldhan
President

Housing continues to languish with foreclosures, falling prices and restricted banks loans. The automotive industry has made some nice recoveries yet is still well below production levels from just a few years ago. The new consumer is different. They are younger and two things are apparent. One, cars are not the highest priority for these consumers. Two, buying a house is also not high on the priority list. What is a priority is the ability to have access to social networking, games, videos, pictures and music. These priorities drive consumers to upgrade their smart phone, iPod, tablet/iPad and notebook. These products are priced such that they do not require credit and are considered a necessity in today’s world.

In 2010 the semiconductor industry will see a growth rate of 32%, a welcome sight to the industry. As I go out and talk to CEOs from around the world, the questions I continually get asked include the following. Are semiconductor sales exploding too fast? Are inventories out-of-control? Is there double and triple ordering? Is 2011 going to be a down year? All of these are valid questions and I’ll address these issues. First, is 32% too much growth?

The simple answer is no. We’ve seen strong unit growth in smart phones, netbooks, notebooks, tablets and HDTVs in the consumer market. All of these devices are connected devices and the additional demand from social networking, music and video downloads have created tremendous demands on bandwidth and storage requirements on the web. We are seeing a strong upgrade cycle in server farms and broadband build-out’s to support these connected devices. The 2010 growth rate is driven by increasing unit demand and the requirement to rebuild supply chain inventory levels. Semico looked at several different semiconductor categories and plotted the unit consumption on a two-year rolling average over the last 25 years. We found that in most cases the 2010 growth just brings us back to the expected trend line level. We will be monitoring inventories closely in 2011.

Our current expectation is that the second half of 2011 should experience slower growth to avoid an overbuilding of inventory. The risk is that semiconductor companies will be driven by their goals to increase market share. That could fuel an inventory over-build resulting in a market downturn that will continue into 2012.

It is our belief that the industry will not allow inventories to get too much out of control and that companies who are investing in wafer fab equipment will rapidly cut off equipment orders as inventories grow. This should make the next downturn short and shallow. Semico also believes that the continued expansion of 3G and the introduction of 4G wireless systems, in addition to growth in server farms and broadband expansion will soften the next downturn. These topics and other important issues surrounding the semiconductor industry are addressed in the monthly Semico IPI report, required reading for anyone wanting to keep up-to-date on the semiconductor industry. Semico will also post the graphs that illustrate the potential timing of the next excess inventory situation so keep visiting our website.

Jim Feldhan
President

GSA put together a great lineup of speakers and panelists. The keynote speaker was Arpit Joshipura, VP & Head of Strategy, Communications, Ericsson who gave a great review of mobile communications landscape. Mobile broadband is expected to connect over 50 billion devices by 2020. That translates into 10 connected devices per person. There’s a lot of speculation as to future uses. Arpit noted one application which he thought was bizarre, connected trees. I actually find that to be quite innovative. As a citrus tree owner, I would appreciate knowing when my fruit is ripe and when the birds are starting to attack my best fruit. Great application!

But getting back to the topic, the panel focused on mobile technology, 3G, 4G…Beyond 3G: 4G, WiMax, LTE…What Next?

Panel members included the following distinguished members.
Sanjeev Athalye, Director Product Management, Qualcomm CDMA Technologies
Raouf Halim, Chief Executive Officer, Mindspeed Technologies, Inc.
Lars Johnsson, Vice President, Marketing & Business Development, Beceem Communications
Sandeep Vij, President and Chief Executive Officer, MIPS Technologies, Inc.
Richard Yeh, Director of Marketing, System LSI, Samsung Semiconductor, Inc.

My main take-a-ways
1. The main driver for 4G: more mobile video Of course its all tied to social networking but video goes beyond that. It will become an accepted way of life for business as well.

2. Deployment of 4G will be different from 3G. There is a difference in opinion as to how quickly and when 4G will have widespread implementation but I agree with this point, 4g is different because the demand is already in place. When 3G was upon us we didn’t know why we needed the wider spectrum. Social networking has changed that. All technologies have an incubation period but the gestation period for 4G is going to be much shorter.

3. On the question of semiconductor chip solutions the panel was split. SOC’s are necessary to enable the $15 mobile device. That application is essential for broad usage. But the high end mobile devices such as smart phones are still two chip solutions. There are new smart phone designs introduced every year. The chips need to be decoupled to be able to keep up with changing needs and new functionality.

4. Finally, the panel agreed that there is a lot of opportunity to participate in the growth that will result from the implementation of 4G. The transition with be quicker than the transition to 3G but 3G will be around for awhile so be ready to support a wide variety of market demands.

5. Although baby boomers (I’m one of them) make up a large portion of the market and can afford to buy most any electronics device, it is truly the younger users that drive the market. They want home applications and experiences on their handset. This means streaming video, HD video, gaming, social networking and video conferencing. And leave it to the ‘under-20’ users to find a killer application that they just can’t live without.

Finally, thanks to GSA and GlobalFoundries for sponsoring the event.

Gross margins have recovered to 64% indicating that companies efficiency and the strength of the overall electronics markets. Intel’s strong 1Q 2010 performance does not come as a surprise to Semico.  The IPI results from one year ago indicated that the industry would see this kind of growth in 1Q 2010.  Intel is the largest chip vendor and a bell whether company. 

The Semico inflection point indicator, published in the Semico IPI monthly report has forecasted a strong 2010. Although final industry statistics for March have not been released, we fully expect that first-quarter 2010 will be between 45 and 50% above first quarter 2009. Our Outlook for second third and fourth quarter looks very realistic at just over 25%.

Inventories still remain tight and there is certainly some momentum in the order rates that indicate OEMs are trying to build some buffer inventory. This inventory build could quite easily drive revenue growth much closer to 30%. So far we have seen the IPI continue to remain at record high levels and have not seen any indications pointing to the beginning of a downturn for the next 12 months.

Driven by end market forecasts, economic scenarios, upgrade cycles and adoption trends our forecast show that there is the fundamental semiconductor demand at least through the end of 2011 which will produce strong semiconductor industry revenue growth.