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Spotlight on Automotive PwC Report

Technology Institute

Interim Update Global Semiconductor Trends – Special Focus Automotive Industry.

September 2013

Launch Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion Preface

Semiconductor companies focusing Preface Why automotive? on the automotive industry as a After a strong recovery in 2010-2011, 2012 was a For a number of reasons, the key market will need to have a Table of figures automotive sector promises to be a difficult year for the global semiconductor industry. -sharp focus on quality from particularly dynamic driver of Due to continuing global economic challenges , product through to Table of abbreviations growth for the semiconductor production and will require annual semiconductor billings in 2012 lagged by industry. Not only is the stringent programme change Methodology semiconductor content of US$8 billion or 2.7% behind the record sales of control in order to profit from the growing rapidly as they rely on growth opportunity the For more information US$300 billion achieved in 2011. The industry is greater intelligence, connectivity automotive sector offers. expected to resume growth in 2013 and is well and sophisticated , but Authors positioned to register a healthy increase over the the nature of the automotive We would like to extend our next five years. industry model is also shifting in sincere thanks to Dr. Reinhard new directions. Concepts of Ploss, CEO of Infineon product ownership will give way to End markets that stimulate overall demand for , and Rick Clemmer, service propositions to deliver President and CEO of NXP are expanding as -led mobility to consumers who will Semiconductors, whose insights exerts its influence on many different pay only for what they use. have tremendously enhanced Creating and managing the our report. aspects of life. In this report, we examine global and systems to deliver that mobility regional trends, but focus most attention on one of will depend heavily on the faster growing segments: automotive. complex electronics. If you would like further information or to discuss any of the findings in our report and how they might impact your business, please do not hesitate to contact either of us ([email protected] or [email protected]) or any member of our global technology team listed at the end of this document.

Raman Chitkara Global Technology Industry Leader

Werner Ballhaus 1 German Technology, Media and Leader Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry Table of f igures

Preface

Table of figures Figure 1: Global semiconductor billings – history Table of abbreviations Figure 2: Global semiconductor billings – forecast by component

Methodology Figure 3: Global semiconductor consumption – forecast by region

For more information Figure 4: Global semiconductor billings – forecast by application

Authors Figure 5: Key drivers for future automotive growth Figure 6: Global assemblies – forecast by region Figure 7: Growth in semiconductor content per vehicle and cost Figure 8: Emission targets requiring more powerful processing capabilities Figure 9: forming part of the smart grid Figure 10: Challenges for semi producers and OEMs

2 Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry Table of abbreviations

ASIC Application-specific Preface ASIL Integrity Levels Table of figures ASP Average selling price AUTOSAR AUTomotive Open System Table of abbreviations BRIC Brazil, Russia, India, China Methodology CAFE Corporate Average Fuel Economy CAGR Compound annual growth rate For more information CCID China Center for Information Industry Development

Authors CMOS Complementary metal oxide semiconductor CPU DRAM Dynamic random access memory eTPU Enhanced time unit EV GDI Gasoline direct injection HCCI Homogeneous charge compression ignition IC Integrated circuit ISO International Organization for Standardization LCD Liquid- display LED Light-emitting MCU unit MCR 13 IC Insights, Inc. – The McClean Report 2013 MIPS Million MPU unit OEM Original equipment manufacturer OSD , and , and discretes SRAM Static random-access memory WSTS World Semiconductor Trade

3 Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry Report structure

Preface We start our review of the semiconductor industry Table of figures with an analysis of global growth and prospects,

Table of abbreviations broken down into component, regional and application categories. We then focus on the Methodology automotive sector, examining the range of key drivers For more information that are together contributing to dynamic growth in this segment. Finally, we provide some suggestions Authors about the questions and issues that senior executives will need to consider as they address the opportunities for their businesses arising from the automotive sector.

4 Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry The global semiconductor market

More recently, a recovering global Overall market forecast The semiconductor industry continues to grow at a economy is reflected in industry rate faster than global GDP. However, as the industry billings – with particularly strong Growth by component matures, the fortunes of the semiconductor industry growth coming from Asia generally and China in particular. Growth by region closely follow those of the global economy. PwC’s According to World Semiconductor analysis (see Figure 1 below) shows how the shocks to Trade Statistics (WSTS), the global Growth by application the global economy in recent years have very rapidly industry posted near-record results shown up in semiconductor billings. The bursting of in 2012. There are, however, considerable variations between the ‘dot.com’ bubble in 2000 and the financial crisis components, regions and in 2008 are both easily traced in the data for global applications. In the following semiconductor billings. section we examine the likely drivers of demand across these for the next five years.

Figure 1: Global semiconductor billings – history

350

298 300 300 292

256 248 249 250 227 226 213 204 200 166 149 bn US$ 144 150 137 139 141 132 126 102 100 77 60 49 51 55 50 45 26 33

0

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: WSTS

5 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Overall market forecast Figure 2: Global semiconductor billings – forecast by component Overall market forecast PwC’s analysis for the global 450 CAGR 2012-17 Growth by component semiconductor market suggests 6.5% 400.2 400 that between 2012 and 2017 379.0 13.6 11.2% 12.5 Growth by region billings will increase by some 355.5 43.2 10.6% 350 11.7 330.5 39.4 US$109 billion, representing a 11.2 35.5 30.0 9.4% Growth by application 305.1 28.0 compound annual growth rate 300 291.6 8.4 31.4 25.6 4.9% 8.0 27.8 50.0 26.2 22.5 47.8 (CAGR) of 6.5%. 20.4 45.5 250 19.1 43.0 40.9 5.4%

bn US$ 39.3 200 101.6 106.1 Growth by component 96.0 89.9 83.9 Logic will remain the largest single 150 81.7 5.6% 79.2 segment, with a total of US$106 71.1 75.4 100 66.8 billion in 2017, followed by 60.2 62.8 50 (MCU) and 74.3 78.0 57.0 61.0 65.8 70.0 6.5% (MPU) at US$79 0 billion and memory at US$78 2012 2013 2014 2015 2016 2017 billion. However, the strongest Memories MPUs and MCUs Logic Analog ICs Discrete semiconductors Optical semiconductors growth story will likely be in the Sensors and actuators smaller optoelectronics, sensors Source: WSTS, PwC analysis and actuators, and discretes (OSD) segments (CAGR: (ASPs) in the DRAM market. electronics will contribute most to The OSD market is forecasted to 10.2%, collectively). MPUs will remain the biggest growth in the logic segment, while grow faster than the IC market, and fastest-growing technology application-specific integrated propelled, for instance, by lamps Within the memory sector, NAND for micro components, driven circuit (ASIC) billings will remain and complementary metal oxide flash will surpass dynamic random mainly by rising tablet and fairly stable. Likewise, application- semiconductor (CMOS) image access memory (DRAM) in 2013, penetration, whereas specific analogue products for the sensors, acceleration and yaw with both technologies being MCU growth will be fueled by automotive and sensors and actuators and power driven by data processing communications, automotive, and markets will foster substantial and . applications and other industrial applications. growth of analogue integrated devices such as , circuits (ICs), whereas the general- e- readers or hand-held video Special purpose logic for purpose market will suffer from ; in addition, consolidation , data declining ASPs. 6 will drive average selling prices processing and consumer Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

significant role in driving the Overall market forecast Growth by region growth. In Asia, Japan is not likely A note on China – dislocated purchasing While the global picture indicates to see significant growth in the Growth by component an annual growth rate of 6.5% to China’s reported semiconductor consumption market is greater than projection , but China will 2017, regional variations are likely most market analysts’ Chinese market share reports. That is because retain and expand its position as Growth by region to be significant over the next five a significant portion of the semiconductor devices consumed in the number one semiconductor years. Europe will grow by only China continues to be purchased outside of China. This “dislocated market in the world, buoyed by Growth by application 3.5% owing largely to the sluggish purchasing” occurs because some customers – due to supply chain strong general economic growth economy and the persistence of the considerations such as control of key inventory items, intellectual and by the rapid growth of its IC unresolved sovereign debt crisis. property protection and/or toll processing business models – will design sector. For the rest of the The Americas will see stronger buy semiconductor devices outside of China and transship them to region, growth is likely to be growth, but unlike in the past, China for use and consumption. concentrated in Taiwan, South South America will play a more Korea and Singapore. Since 2007 we have been identifying this dislocated purchasing for the Chinese consumption market by comparing consumption to purchasing TAM (total available market). Using a recently revised Figure 3: Global semiconductor consumption – forecast by region measure of purchasing TAM, we have found this dislocated purchasing to have only increased slightly since 2007, to just over 2012 2017 24% for the last two years. The largest share of this dislocated 11.8% 16.7% 12.4% 14.8% purchasing has occurred in Taiwan, Korea, Americas and Japan. However, we expect that the share will decrease gradually over a 11.1% 9.6% number of years in the future as:

5.8% 7.3% • China’s domestic market consumption increases its share of China’s total semiconductor market; • Multinational electronic equipment manufacturers and 52.5% 58.0% semiconductor companies presently offshore move design and Americas purchasing activities to China; Europe Source: MCR13, CCID, PwC analysis. China’s 2012 share of consumption market is based Japan upon MCR 13 market history. Regional share of worldwide consumption market is based China upon Gartner “Semiconductor Forecast , Worldwide, 2011-2017, 1Q13 Update” with • Chinese fabless semiconductor companies gain market share in Rest of the world adjustments for disclocated purchases. the China market; and • Leading multinational and regional distribution firms establish self-reliant purchasing and warehouse/ logistic centers in China.

7 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Growth by application Figure 4: Global semiconductor billings – forecast by application Overall market forecast The largest overall industry Growth by component segments will remain data 450 CAGR 2012-17 6.5% processing and communications in 400 400.2 379.0 Growth by region the period to 2017. However, it is 41.4 8.8% 355.5 39.4 350 the smaller segments – automotive 330.5 36.3 40.0 9.4% Growth by application 37.4 and industrial – that are likely to 305.1 33.1 300 291.6 34.5 28.4 45.8 1.9% display the highest growth rates 27.1 31.1 45.9 27.9 46.1 – with automotive set to grow by 250 25.5 45.4 42.7 41.7 7.5% 9.4% annually and industrial by 119.7 8.8% CAGR until 2017. bn US$ 200 112.8 97.3 105.0 89.4 150 83.3

100 143.6 153.3 6.1% 133.6 50 113.9 116.6 123.7

0 2012 2013 2014 2015 2016 2017

Data processing Communications Automotive Industrial

Source: WSTS, PwC analysis

8 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Data processing Communications Consumer electronics Industrial Overall market forecast will remain Growth in communications devices In consumer electronics the trend Growth in industrial Growth by component the most powerful driver of will continue to be determined by towards converged devices that semiconductor billings is generally semiconductor sales in the data the extent to which they offer combine , and believed to be correlated to growth Growth by region processing segment, with total smart capabilities. The inexorable TV in one digital set-top will be in GDP, multiplied by a factor of billings rising from US$26 billion rise of smartphones will continue a major driver of growth. Smart between 2 and 4. With that Growth by application in 2012 to US$34 billion by 2017. to eclipse traditional, basic and TVs will grow in popularity and we assumption, the industrial sector However, here again, things are feature handsets. However, are also likely to see an upturn in looks set for growth of between 6% changing. The rise of the tablet and demand for a more basic the TV market – particularly in and 12% in the period to 2017. the (relative) decline of the desktop smartphone in emerging South America – to 2014 as both Within the general segment, it is PC will see a shift in the market by economies is likely to reduce the the FIFA World Cup and the likely that energy related 2017, with the scale of requirement for semiconductors Olympics (2016) are hosted by applications will be one of the semiconductor billings for tablets compared to more complex and Brazil. New games consoles such as strongest drivers, with efforts to Dr. Reinhard Ploss, CEO likely to exceed those for desktop sophisticated devices that will ’s PlayStation 4, Nintendo’s increase efficiency across the : . Even higher growth is continue to hold sway in developed Wii U and Microsoft’s Xbox One energy value chain from likely to be seen in the convertible markets. In developed markets, the will all have a positive impact on generation through transmission “We expect the global devices that a between roll out of high-speed broadband semiconductor billings, especially and distribution to consumption all the PC and the tablet – and internet networks (4G) – and the prospect in 2013 and 2014. While the requiring sophisticated electronics. semiconductor industry to enabled devices that can access of 5G – will drive smartphone continual decrease in sales of Other sectors that should exhibit grow by 5-7% p.a. in the cloud-based services and sales. In developing economies, conventional CD and DVD players growth in demand are healthcare years going forward … applications are also likely to make where feature phones still and recorders might be partially where connected devices will a noticeable impact on the dominate, there is even more scope offset by Blu-Ray devices in the become increasingly ubiquitous as Some of the key drivers for semiconductor industry. for smartphone penetration (albeit years ahead, sales of portable health services shift from clinical growth will be energy at lower specs than those for media players and digital still settings to the home environment. efficiency, mobility, (data) developed markets) – and that will are expected to continue And as homes become generally increase semiconductor content their decline. more connected to digitally security and also per phone. connected devices (often referred connectivity – both of people to as the ‘internet of things’), with , for example, security and and things.” automation becoming more prevalent, these developments will also contribute to sustainable growth in industrial applications 9 of semiconductors. Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry Automotive: Driving growth for the semiconductor industry

The growth in the Automotive drivers Figure 5: Key drivers for future automotive growth Automotive drivers for growth automotive sector will for growth Challenges to realising the automotive sector’s full potential come largely from two More cars and light vehicles are now produced in emerging Application major trends: one is the markets than in the developed growth extent and pace of change economies – and these will become Electronics content growth key markets for auto 2012-2017 in the industry itself and in vehicles Growth: manufacturers, their suppliers and 9.4% the other is the the semiconductor industry. Vehicle significantly higher growth New PwC believes that the BRIC nations applications proportion of electronics enabled (Brazil, Russia, India, and China) by new that are increasingly will remain the most important semiconductor technology standard in automobiles. growth driver for global Regulations automotive demand, featuring average annual growth rates between 6.5% (Brazil) and 9.4% (China) for the years 2012-17. BRIC While shipments in Europe countries (and especially in Germany) will

see another drop in 2013, and Source: PwC analysis grow considerably in the years going forward, demand in the US is forecasted to increase continuously with a CAGR of 4.4%. Globally, light vehicle assemblies are expected to grow by 5.0% p.a.

10 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Improvements to semiconductor Figure 6: Global light vehicle assemblies – forecast by region Automotive drivers for growth technology have enabled rapid Challenges to realising the growth in the last 60 years. The 120 automotive sector’s full potential use of electronics in automobiles is CAGR 2012-17 5.0% the single largest driver of change 101.1 100 97.9 in the sector – nearly all 93.2 4.2% 86.7 21.2 automotive arises 20.7 79.2 81.1 19.8 directly or indirectly from 80 (2.4)% 18.9 8.3 8.3 developments in electronics. 17.2 17.6 8.4 12.8 4.8% 8.7 12.4 60 9.4 8.6 12.1 Data suggest that semiconductor 11.4 Units (m) Units 11.0 3.4% content per car is likely to grow 10.1 20.0 20.5 19.2 from US$315 in 2012 to US$385 by 40 17.7 16.9 2017, and the overall cost of 17.3

electronics in cars is expected to 20 36.5 38.4 30.0 33.7 8.8% reach more than 30% by 2017. 25.2 27.0 Nearly all innovation that is taking 0 place in automotive is electronic 2012 2013 2014 2015 2016 2017 rather than mechanical. BRIC Europe that are introduced to US the luxury end of the market are Japan being implemented in more RoW standard vehicles faster than ever Source: PwC Autofacts (Q3 2013) as costs continue to fall and innovation accelerates. Rick Clemmer, President and CEO of NXP Semiconductors: “We believe that a very significant portion of the growth in the industry will continue to come from the desire of car makers, Tier 1 suppliers and semiconductor companies to create and capture more value by offering innovations that will improve the overall driving experience.”

11 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Electronic systems in cars address Standards such as the NCAP Automotive drivers for growth Regulation five key areas: scheme provide a star-rating Regulation covering emissions and system for vehicle safety. Challenges to realising the safety will drive the further need automotive sector’s full potential • Regulation Achieving a maximum five star for connected devices and award has proven to be a • Sustainability components in the vehicle to strong selling point for auto ensure compliance and provide • Safety and security manufacturers. Its achievement monitoring and reporting. Energy relies on complex and sophisticated • E-Mobility efficiency, emissions and safety are assisted driving systems that likely to be the primary drivers. require significant semiconductor • Body and convenience Various regulatory initiatives will content. place stringent demands on auto Figure 7: Growth in semiconductor content per vehicle and automotive electronics cost manufacturers and their suppliers. For example, environmental Forecast average semiconductor content per Automotive electronics cost (% of total standards in the EU are likely to light vehicle car cost) call for a 30% to 40% reduction in 400 60% emissions by 2020. And as 390 385 50% emissions standards have changed 50% 380 over the years, they require 371 370 increasingly powerful 40% 360 358 35% semiconductors to ensure that vehicles’ performance is in 30% 30% 350 344 compliance. 340 US$ 332 20% 20% 330 15% 320 315 10% 10% 310 3% 4% 1% 300 0% 2012 2013 2014 2015 2016 2017 1950 1990198019701960 2000 2010 20302020

Source: PwC analysis

12 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Figure 8: Emission targets requiring more powerful processing capabilities E-Mobility Automotive drivers for growth The growth of electric and hybrid Challenges to realising the cars will create additional automotive sector’s full potential 2005 2009 2012 2014 2015+ demands on electronic equipment. MCU Requirment Evolution These will take the form of greater Emission Euro IV Euro V CAFE Euro VI Euro/CAFE Standard sophistication and reliability in MCU Technology • Port • Combined • GDI • Hybrid, power and battery performance. & Transmission • High Pressure Car Electrication Next Applications to monitor and • Flexfuel Common Rail • Valvetronic Generation • HCCI manage battery performance will therefore become increasingly sophisticated, as will stop/start Required • 32bit CPU • 32bit CPU • 32bit CPU • 32bit CPU • 32bit CPU systems and more efficient systems Semiconductors • 80 MIPS • 200 MIPS • 600 MIPS • ˜1000 MIPS • ˜1500 MIPS Technology • 34K SRAM • 64K SRAM • 256K SRAM • 384K SRAM • 512K SRAM for charging at multiple speeds and • 1M Flash • 2M Flash • 4M Flash • 6M Flash • 8M Flash controlling electric motors. • Dual eTPU • Dual eTPU2 • Low Power In addition, the rising trend of Source: PwC analysis e-mobility as a mass phenomenon Sustainability Achieving reductions in emissions will depend heavily on the use of in conventional relies on In addition to the development of sophisticated intelligence and constant monitoring and hybrid and fully electric vehicles, information processing, both correction of a vehicle’s traditional internal combustion in-vehicle and in the wider performance. Applications such as engines will have to become ever infrastructure. And the powertrain microcontrollers and more fuel-efficient. The development of the smart grid power modules will be required to improvements in efficiency will could see electric vehicles (EVs) as achieve targeted improvements for depend heavily on semiconductors, a major component, enabling their efficient engines. They will with optimisation of an engine’s drivers to recharge intelligently, manage holistic performance, from performance increasingly reliant pay securely and feed power back reducing injection losses and on semiconductors ‘managing’ in the grid. optimising ratios and shifting mechanical components. to reducing energy waste from hydraulics and friction.

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Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Figure 9: Electric vehicles forming part of the smart grid Body and convenience Driving with a different Automotive drivers for growth Optimising the experience that a model – from product Challenges to realising the Off-Board On-Board vehicle provides to its drivers and to service automotive sector’s full potential passengers will be a priority driver The automotive industry itself is Power Supply for OEMs and their Tier 1 suppliers changing. Different models of as they seek to achieve vehicle ownership are coming to differentiation in a highly Power Service Charging Home the fore and will grow. These take competitive market. Dr. Reinhard Ploss, CEO Company Providers Stations Charging the form of schemes that offer mobility on a pay-as-you-go or Infineon Technologies: The trend towards increasing as-needed basis, without the levels of comfort, entertainment necessity to take on the ‘burden’ of Data Exchange “Across the regions we see and communications will spur ownership and maintenance. growth in the semiconductor variations with regards to content Source: PwC analysis Mobility-as-a-service developments growth. In Europe, advanced content in each vehicle. Everything are largely in response to the safety and driver assistance from lighting to heating will be growth of mega cities and systems and communications Safety and security controlled electronically. The extensive urbanisation. By 2050, systems are key growth drivers, devices embedded in the vehicle. dashboard will become fully Advanced safety and security more than 80% of the population for example, adaptive cruise electronic with LCD and LED features are no longer the preserve in developed countries and 60% in control, blind spot recognition, The future is likely to see displays providing drivers with all of the luxury end of the automotive developing economies will live in lane departure warning and intelligent traffic management the information about their markets. And as more and more urban environments. That will systems that will communicate vehicle, its performance and the adaptive lighting with LED front affordable electronic equipment create the need for energy- lighting technology. In China, the both between cars and with an external environment. trickles down into entry-level intelligent infrastructure. As the efficient, smart mobility solutions provided as a service – with growth areas are more vehicles it becomes increasingly extent and array of smart and Information and entertainment electronics playing a key role in convenience features such as available to consumers in emerging connected devices and applications systems will become ever-more their delivery. infotainment. The drive for CO2 markets, fuelling an increase in the develops, there will be a greater sophisticated, with connectivity of reduction will provide global demand for in-car electronic need to create security both to systems within the car as well as growth in semiconductors for devices to monitor conditions and prevent devices being hacked or traffic prevent accidents. advanced engine management compromised and to provide management and other sources of greater levels of protection for information increasingly common. systems as well as electric These applications include systems drivers, their passengers and for electronic steering, braking and vehicle controls.” personal possessions. stability as well as driver assistance systems such as cameras, 14 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

Managing smart mobility Automotive drivers for growth effectively requires extensive Challenges to realising the connectivity both between vehicles automotive sector’s full potential and the smart infrastructures in which they operate. From intelligent traffic and safety management, to advanced entertainment and information and sophisticated billing systems, semiconductors have a central role to play in delivering the future Rick Clemmer, President and CEO of NXP Semiconductors: of driving. “All of these smart mobility applications will drive growth in semiconductor content. In addition, they are signaling a change in the traditional automotive ecosystem. There are new players coming into the picture who have different ways of driving innovation than the typical automotive players, which creates new opportunities that didn’t exist even a few years ago.”

15 Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

The automotive industry is Automotive drivers for growth Challenges to realising Figure 10: Challenges for semi producers and OEMs the automotive sector’s governed by strict safety standards – with compliance with ISO 26262 Challenges to realising the full potential Parameter Consumer Industrial Automotive automotive sector’s full potential being one of the most important.1 While the automotive sector offers Much more than other industries, Temperature 0 – 40°C -10 – 70°C -40 – 160°C definite growth potential for the automotive products can be subject Operation Time 2 – 5 years 5 – 10 years Up to 15 years semiconductor sector, it is by no to recall, involving lengthy, Humidity Low Environment 0% – 100% means a trouble-free journey to get complex and costly processes. there. There will be a number of Tolerated Field <10% <<1% Target: 0 failure Semiconductor manufacturers will Failure Rate challenges to be overcome along have to ensure that they find ways Documentation Minimal Conditional Required the way. to work effectively with OEMs and Dr. Reinhard Ploss, CEO Tier 1 suppliers, and manage the Supply Average 1 year ~ 2 – 5 years Up to 30 years Infineon Technologies: risk of having to fund a full Source: PwC analysis product recall – if a chip is detected “Agreements covering product as the root cause of an issue. The quality between suppliers and cost of recall could exceed all OEMs have become more and revenue from an automotive Rick Clemmer, President and CEO of NXP Semiconductors: more detailed as the electronic manufacturer – and OEMs often “Given the possible impact on passenger safety, product systems increase in complexity. ask for a warranty provision. The quality is clearly expected to be very high (zero defect) in the That means that the requirements table below (Figure 10) highlights the automotive sector’s distinct and automotive industry. This generally creates significant set for suppliers are becoming stringent demands of the barriers to entry as it requires not only highly qualified more complex too.” performance it requires from capabilities, but also highly specialised skills semiconductor components. of the chip designers (design for quality).”

1Under the general title ‘ vehicles – Functional safety’, ISO 26262 is “intended to be applied to safety-related systems that include one or more electrical and/or electronic (E/E) systems and that are installed in series production passenger cars”, according to the International Organization for Standardization. Among others, ISO 26262) provides an automotive-specific risk-based approach to determine so-called Automotive Safety Integrity Levels (ASIL).

16 Continued Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry

The development of smart mobility Automotive drivers for growth will create new technical and Challenges to realising the performance challenges for automotive sector’s full potential semiconductor manufacturers. Dr. Reinhard Ploss, CEO Infineon Technologies: They will need to ensure high levels of reliability as well as “We introduced our slogan ‘From product to systems’ to providing guaranteed levels of service for wireless connections. complement our strength in technology by understanding what our customers’ systems require and how we can help One of the keys to developing the them in solving their challenges.” future market is to achieve greater standardisation and Rick Clemmer, President and CEO of NXP Semiconductors: interoperability between solutions. Initiatives such as AUTOSAR2 are “The best remedy is to avoid the recalls in the first place… likely to come increasingly to We focus on first-class development and manufacturing the fore, and may help to drive the processes and on very rigid change management.” adoption of standards in global markets.

Greater collaboration between semi manufacturers, OEMs and Tier 1 suppliers will become more important, but it will require new business models that share development and R&D activities to create the right products and services.

2AUTOSAR (AUTomotive Open System ARchitecture) is “a worldwide development partnership of car manufacturers, suppliers and other 17 companies from the electronics, semiconductor and industries” (www.autosar.org). Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry Summary and conclusion

Preface PwC’s forecast for the global Making the most of the evolving needs of the automotive sector. To capitalise on the growing Table of figures semiconductor market suggests opportunity that automotive that between 2012 and 2017 affords will require new ways of demand, organisations will need to assess the range of skills and Table of abbreviations billings will increase by some working, and the need to develop US$109 billion, representing a specific strategic responses to a competencies that success requires, identify any gaps and find ways to Methodology compound annual growth rate number of key questions. Senior (CAGR) of 6.5%. Data processing management will need to gauge fill them. For more information will remain the largest single both their understanding of and segment, with a total of US$153 appetite for developments in the Authors billion, followed by automotive market. That, in turn, communications at US$120 billion. will require them to explore the However, the strongest growth key trends across the automotive story will likely be in the smaller value chain and identify the segments: automotive (forecasted specific implications that these will 9.4% CAGR) and industrial have for their business. New ways (8.8% CAGR). of working, based on collaboration, will become increasingly important The automotive sector will create as semiconductor manufacturers strong demand for semiconductor are tasked with helping to create content in vehicles as more solutions that respond to a specific regulation, greater efficiency and business need or opportunity the manufacturers’ search for rather than simply supplying differentiation continues to components. And as those increase the need for sophisticated opportunities become clearer, they electronics. These will control and will present the chance for monitor just about every aspect of semiconductor manufacturers to a vehicle’s performance and the differentiate themselves and drive experience it offers to drivers competitive advantage through and passengers. innovation that aligns to the

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Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry Methodology

Currency used for the sales Interviews with experts Preface Sales forecast forecasts Calculation of sales forecasts Interviews with Dr. Reinhard Ploss, Table of figures The currency used for the sales CEO of Infineon Technologies, and Sales forecasts are based on forecasts is the United States Rick Clemmer, President and CEO Table of abbreviations analyses of technological trends, dollar, the “base currency” of the of NXP Semiconductors, were held the main value drivers and the semiconductor industry, at least in in June and July 2013. Methodology competition. This is followed by the main commodity markets. analyses of macroeconomic factors, Exchange-rate fluctuations have For more information changes in consumer behaviour not been assumed. The figures are and demographic developments. reported in nominal terms, and Authors Mathematical forecast models are thus include inflation effects. The used as the basis for investigating historical data is taken from the effects of individual value WSTS. The sales are shown as drivers and for forecasting the “billing revenues”. developments of the semiconductor market. The data obtained are then assessed by our industry experts, checked for consistency and adjusted where necessary.

19 Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry For more information

Preface Raman Chitkara Werner Ballhaus – Germany Greg Unsworth – Singapore Richard Hanna Global Technology Leader T: 49 211 981 5848 T: 65 6236 3738 Global Automotive Leader Table of figures T: 1 408 817 3746 E: [email protected] E: [email protected] T: 1 313 394 3450 E: [email protected] E: [email protected] Table of abbreviations Sandeep Ladda – India Andy Chang – Taiwan Rod Dring – Australia T: 91 22 6689 1444 T: 886 2729 6666 ext. 25216 Felix Kuhnert Methodology T: 61 2 8266 7865 E: [email protected] E: [email protected] European and German E: [email protected] Automotive Leader For more information Kenji Katsura – Japan Douglas Mahony – UAE T: 49 711 25034 3309 Estela Vieira – Brazil T: 81 90 5428 7687 T: 97 1 43043151 E: [email protected] Authors T: 55 1 3674 3802 : [email protected] E: [email protected] E: [email protected] Hoonsoo Yoon – Korea Jass Sarai – UK Christopher Dulny – Canada T: 82 2 709 0201 T: 44 0 1895 52 2206 T: 1 416 869 2355 E: [email protected] E: [email protected] E: [email protected] Ilja Linnemeijer – The Netherlands Tom Archer – US JianBin Gao – China T: 31 88 792 4956 T: 1 408 817 3836 T: 86 21 2323 3362 E: [email protected] E: [email protected] E: [email protected] Yury Pukha – Russia Xavier Cauchois – France T: 7 495 223 5177 T: 33 1 5657 10 33 E: [email protected] E: [email protected]

20 Spotlight on Automotive PwC Semiconductor Report

Report structure The global Automotive: Driving Summary and semiconductor market growth for the conclusion semiconductor industry Authors

Raman Chitkara Preface About PwC’s About PwC T: 1 408 817 3746 Technology Institute E: [email protected] PwC firms help organisations and Table of figures The Technology Institute is PwC’s individuals create the value they Werner Ballhaus global research network that are looking for. We are a network Table of abbreviations T: 49 211 981 5848 studies the business of technology of firms in 158 countries with close E: [email protected] and the technology of business to 180,000 people who are Methodology with the purpose of creating committed to delivering quality in Dr. Bernd Kliem thought leadership that offers both assurance, tax and advisory For more information T: 49 89 5790 5549 fact-based analysis and experience- services. Tell us what matters to E: [email protected] you and find out more by visiting Authors based perspectives. Technology Institute insights and viewpoints us at www.pwc.com. Stan Berings T: 31 88 792 11 56 originate from active collaboration E: [email protected] between our professionals across the globe and their first-hand Boris Weiss experiences working in and with T: 49 211 981 2837 the technology industry. For more E: [email protected] information please contact Raman Chitkara, Global Technology Industry Leader at raman. [email protected].

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21 Design Services 28327 (09/13).