Semicon leaders look to consumer, auto sector growth

Digital consumer electronics, mobile terminals and automotive electronics, which last year began replacing computers as the driving force behind the growth of the semiconductor market, are expected to remain in that position for most of the next decade, top executives of major semiconductor companies said at a conference Monday.

"In the past a single product was used for a single function," said Hajime Sasaki, chairman of NEC, speaking at the Silicon Sea Belt Summit 2003 in Fukuoka, Japan. That has changed, he said, with the growing complexity of consumer electronics devices meaning they rely increasingly upon specialized, custom-designed and expensive LSI (large scale integrated circuits) chips rather than cheaper off-the-shelf chips. "Now System LSIs are getting into general devices," he said.

You don't have to look far to find examples of this trend.

Just last week Sharp launched a hard-disk based video recorder -- itself a product category that did not exist a few years ago -- that can stream recorded programs to users across the Internet, keep a family photo album, publish photos on the Web for others to view and accept incoming images from cell phones with cameras. The latter is also fast growing in complexity. What was a simple voice phone five years ago can now be used to browse the Web, send and receive e-mail, take still or moving images and run Java games.

Some idea of the growth of the Japanese digital consumer audio visual (AV) market was provided by Fujio Nakamura, a corporate advisor to Matsushita Electric Industrial, which makes products under the Panasonic brand name. He said that 59 percent of current AV products were digital but that this is expected to increase to 66 percent in 2004 and 73 percent in 2006.

This represents a rise of around 75 million units over four years and with each using more complex chips than before, it is not difficult to see why semiconductor companies are keen on the prospect of what Yoon Woo Lee, president and chief executive officer of Samsung Electronics, called a "paradigm shift."

Lee said he sees the electronics industry moving from the Internet era, where connectivity and intelligence was built into certain products, to the "ambient intelligence society" where everyday objects posses such capabilities. "There are three key words for the era: mobile, network and ultra broadband," he said.

Lee also said that he sees automotive electronics as a huge area that is only just developing. In 2002, around 19 percent of a new car's price was for its electronic systems however Lee sees this rising to as much as half the purchase price of a car in the future.

His prediction may not be far off the mark.

"Forty seven percent of the cost of the Prius is electronics and this percentage is expected to grow in the future," said Hironobu Ono, a director of Toyota, referring to the company's Prius, one of a handful of gas/electric hybrid automobiles that have only just begun to hit the market. Beyond the stereo system, advanced auto electronics includes safety systems, such as collision avoidance and pre-crash brake assistance, a night view system to enhance visibility in the dark and a monitoring system to provide views all around the vehicle.

It's not just demand from developed, industrialized nations where the digitalization of everyday life is moving ahead. In China, the consumer electronics sector already outranks computers and telecommunication in terms of demand for integrated circuits, and Richard Chang, president of contract chip maker Semiconductor Manufacturing International (SMIC) said he sees digital consumer electronics as the next market driver.

Because of their nature, digital consumer electronics devices often work with other devices and this helps drive demand for chips, he said.

"The digital camera market itself is not so big but people want to print those photos so they need a printer, send the photos so they need a computer, and store them so they need some type of storage device. The peripheral market is large."

All of this adds up to increased demand for more complex semiconductors, representing good news for the semiconductor industry, which is in the middle of a shift from 200-millimeter diameter wafers to 300-millimeter wafers. Investment in a new 300-millimeter plant is close to U.S.$2.5 billion, said Samsung's Lee, and the time it takes to get back the investment is becoming longer and longer.

The slump in the Internet and telecommunication industry coupled with a fall in the price of DRAM (dynamic RAM) chips for computer memory has also cut revenues at the companies leaving them searching for a new source of revenue.

If the digitization drive continues and such products play more and more an important part in our lives, it might just be what the semiconductor companies need to continue fuelling growth in their industry.

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