We look at some of the findings analyst group iSuppli had hoped to present at a recent summit before a Finnish volcano intervened.
The technology recovery is under way, according to analysts from iSuppli, and although challenges remain, even these may be comparatively short-term.
In an exclusive briefing for EDA Tech Forum, the company unveiled some of the findings originally due to have been presented at its summit this spring in Berlin, which was cancelled because of the air travel clampdown in Europe.
“After the rollercoaster ride, the market’s becoming more stable,” said Dale Ford, senior vice president, market intelligence. “As we go into 2010, the year-on-year comparisons will still be stark but that’s coming off numbers in 2008 and 2009 where the highs and lows were more extreme than we’ve ever seen.”
The company expects a 30.6% growth in semiconductor revenues this year to $300.3B from $229.9B. The last time the pendulum swung quite that far Bill Clinton was still president and AOL and Time Warner were getting Wall Street plaudits for merging.
“The important thing though is that the quarter-to-quarter comparisons will be more seasonal, more in line with historic trends, and that suggests things are moving back into the pattern.”
This has begun with what could be seen as a ‘correction’ during the first quarter of 2010. The period usually sees chip sales decline as sales fall back after the peak holiday season. However, this year, sales actually rose by 1.1% sequentially on Q4 2009.
“This is the first time the industry has achieved sequential growth in the first quarter since 2004 and it represents the strongest growth during the period since 2002, when revenue grew by 5.4%,” said Ford. But after this, the pattern is expected to return to normal.
The recovery is being led by the wireless and PC markets, Ford said, with both already coming back strongly. “We’ve just seen a 28% rise in PC shipments, well ahead of the 20% expected.”
These two markets were also those less affected by the global downturn, with PC’s numbers holding flat and handset shipments only slipping by single digits.
“We didn’t see a collapse there,” said Ford. “By contrast, we’re still a little cautious on automotive. You can see growth but that’s off it having taken a huge hit and the early numbers could be deceptive.”
Meanwhile, another good sign is that the consumer electronics market is also showing signs of a more, predictable recovery.
Amid the good news, there are, however, some concerns. As demand returns, iSuppli is warning of potential product shortages with some key lines going on allocation. Microcontroller companies warned of this prospect earlier this year during embedded world in Nuremberg.
“The key areas we now see being affected include memories and analog silicon. There is talk of allocation already and we’re seeing pricing go up on some lines—that’s always one of the signs,” said Ford.
At iSuppli, analysts expect shortages to persist through into the third quarter of the year, although the duration of the overall capacity crunch will hopefully be shorter than that the last time electronics emerged from a downturn in 2001.
“During that recovery, inventories were scattered across the supply chain at OEMs, contract manufacturers and so on. And they were bloated. That all contributed to dragging out the recovery over six months,” said Ford. “This time inventories have been much more aggressively managed and were pushed to the suppliers who have kept them very lean, so we see things coming back much more quickly and a far closer matching even now of supply and demand.”
The positive trend will propel global factory revenue for electronic systems to a record high of $1.55T in 2010, up 10.4% from $1.4T in 2008. The previous high for electronic OEM revenue was $1.53T in 2008.
Of course, much of this is contingent upon the world economy continuing to move forward and avoiding the threat of a double-dip recession. “It represents the biggest wild card in iSuppli’s 2010 forecast,” Ford warned. “While many indicators have shown sustained improvement, there are, however, a number of financial and economic trouble spots that could endanger the continued growth in the market before the end of 2010.”
With its forum originally set to take place in Germany, the iSuppli team had put together a number of presentations looking specifically at the automotive electronics market. Already, the sector has come under close scrutiny as one of the hardest hit by the worldwide recession (and for various national bail-out and subsidy programs that were organized as a result).
However, the iSuppli work also shows automotive to be a market ripe for major technological change. According to Richard Robinson, principal analyst for automotive, infotainment is one of the areas undergoing a radical transformation.
“There are three areas that developers have got to look at, and they’ve been the same for a while. And they are the visual side—what is it you’re allowing people to look at when they interface with your system; the audio side—what is it you’re allowing people to hear; and the interface—how do they do all that,” he said. “Now those are all changing as we move towards more of these next generation systems.”
In Robinson’s view there is a model for this change, but it is not one with which the automotive industry may find that it is particularly comfortable.”
“Look at it this way. Until even quite recently, all you could do in your car was answer the phone, get some directions and pop in a CD. Now, we’re in a situation where you can set up the entire in-car network to support applications yet we’ve no real idea what consumers are going to want to do on it. But we still need to provide that platform and the bottom line is that it sounds very much like the PC,” said Robinson.
Indeed, it also sounds like the platform developing rapidly in the mobile communications space thanks to products such as the iPhone.
“And the iPhone does, in some ways, offer some greater control because there it’s Apple that controls the App Store,” added Robinson. “But basically what you are talking about is standardization and, out of that, commoditization and that runs against two of the basics of the automotive industry.
“First, it’s very engineering-based. It’s been about providing whole solutions, whole systems and sub-systems, and then hooking them together. Second, it’s very OEM-based. That’s about each company providing its unique solution for its products. Markets now though are moving towards platforms and then other very clever people come to those platforms with ideas.”
A Sync-ing feeling
The iSuppli view is that even if automotive OEMs and their suppliers do not like the look of this model, it is arguably too late to do anything about it.
“Ford has already gone a long way down the line with Sync,” said Robinson. “They’ve seen how things were going and they’ve approached it not by trying to control every aspect but by focusing on what they are good at: providing the platform.”
The Sync infotainment platform has immediate implications for Ford’s rival OEMs—it has its equivalent of an App Store up and running and has cars ready to load its offerings today, with a target of equipping 85% of its entire range by 2015.
“Ford’s version of the App Store is a year to 18 months ahead of anyone else, no matter what the other companies say,” said Robinson. “And they are also leading the way in monetizing this change in the infotainment architecture, although I think it could go a lot further.”
However, semiconductor suppliers also need to take note here, particularly of how Sync works.
“Do you know how you add navigation to the Sync architecture – via an SD card,” said Robinson. “There’s no separate box, no separate chip. In fact, if you look at Sync, you’ve got a very powerful applications processor in there from Freescale [Semiconductor] and then you can run what used to be perhaps 30 or so systems on that after loading them in just the same way.
“The implications for design wins in automotive are obvious. They are going to shrink really fast. Today, we’ve got processors that we are putting into cars and the percentage of their capability that is being used is going down—and if you look at how powerful these applications devices are, we should have seen this coming for a while.”
And yet, Robinson says that some companies are still being caught cold even though Sync vehicles are rolling off the production line.
Robinson argues that Sync still has one weakness that needs addressing: how the system connects to the outside world.
“Obviously, you can connect portable devices in there, but in terms of the actual datapipe, even Sync hasn’t really started to explore things,” said Robinson. “And it’s true that there are some massive issues here, some very big ‘buts.’”
These include geographical concerns. Wireless data across the USA is one thing, but in Europe, the plethora of national operators and often-onerous roaming charges are both making OEMs wary.
“And they’re pretty scared that they will end up having to pay the network operators huge sums of money to handle the traffic. ‘Oh my God, it’s going to flood the network,’” said Robinson. “But we won’t be able to establish a credible set of next generation infotainment and telematics systems without that link.”
He believes that there are some possible solutions. “The big car companies could go to the telecoms companies and do a deal based on a very thin data pipe. This would ring fence the idea of wireless to the vehicle so that it isn’t used for things like music downloads or anything that involved a lot of bandwidth.
“Instead, you would simply have a thin client linked to the vehicle to tell you when you need a service or provide traffic information and maybe some location based services—anything that kept the data rate relatively low.”
At the same time, though, there also needs to be enough capacity here to allow wirelessly enabled applications to provide genuine value and further monetize the infotainment system.
“But that is also a delicate one,” warned Robinson. “Funnily enough, you can use that analogy right now that we’re on the edge of the volcano. Ever since the first navi was launched there’s been an opportunity sitting there for lawyers to pile in on the driver distraction issue. And it’s going to have to be handled extremely carefully.
“We don’t want an open architecture environment where you have hundreds of applications running on the vehicle. That would be an absolute disaster. Anything that requires the driver to go away from the standardized half-a-second glance to pick up 80% of the data should be blocked if the car is traveling at more than 5mph. We shouldn’t have things like Twitter running in the car live for the front seat.”
The iSuppli team is currently looking to reschedule its Berlin event and will be publishing more of its research as and when dates can be fixed. For more information, go to www.isuppli.com