Technology, Media & Telecommunications A change of pace for the semiconductor industry? pwc A change of pace for the semiconductor industry? Edited by PricewaterhouseCoopers By Werner Ballhaus, Dr Alessandro Pagella and Constantin Vogel All rights reserved. Reproductions, microfilming, storage and processing in electronic media are not permitted without the publisher’s approval. Typesetting Nina Irmer, Digitale Gestaltung & Medienproduktion, Frankfurt am Main Published by Kohlhammer und Wallishauser GmbH, Druckerei und Verlag, Hechingen Printed in Germany © November 2009 PricewaterhouseCoopers refers to the German firm PricewaterhouseCoopers AG Wirtschafts- pruefungsgesellschaft and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. A change of pace for the semiconductor industry? Preface Preface Innovation drives the semiconductor industry, and in turn its chips form the heart of modern industrial societies. Chips are at the essential core of mobile telephones, computers, flat-screen monitors and television sets, a wide range of medical procedures including CT scans, ultrasound and X-rays, and they play an enormous role in today’s sophisticated cars and aircraft. The number of installed semiconductor components expands constantly, so it would be easy to assume that the semiconductor industry is experiencing a golden era. However, despite the increasing demand for chips, hardly any other sector has been hit so hard by the current economic crisis. How will the market for chips develop in the next few years? What business models will prove to be robust during the crisis and beyond? Where are the current opportunities? What are the critical factors of success? This study considers those and other essential questions. Apart from an analysis of the production process and the subsequent value chain, this study comprises a benchmark analysis of the main segments of the semiconductor industry. Experts who offer their view of technological and economic developments in interviews include Professor Doris Schmitt- Landsiedel, Technische Universität München; Professor Jürgen Becker and Professor Michael Siegel, Karlsruher Institut für Technologie; Peter Wennink, ASML; Andrea Cuomo, STMicroelectronics; and Herbert Halamek, Continental. In addition to the interviews, we had fruitful discussions with Carla Sinanian, NXP Semiconductors; Dr Peter Hardt, Infineon Technologies; and Dr Helmut Lagger and Ulrich Schoen, Nokia Siemens Networks. We appreciate all these contributions and thank the participants for their cooperation and wisdom. We particularly thank Peter Bauer, Infineon Technologies, who has enhanced our study with a guest article. The aim of this study is to identify issues which will be the driving force behind the market in the next few years and to use this analysis to recommend action for semiconductor companies (some of which have already acted and are now well poised to meet the challenges of the future). Which products, which components and which regions have to be considered is the subject of our sales forecast. Our study focuses particularly on the European perspective. Are there indications of a change of pace for the semiconductor industry? Join our journey into the complex world of the semiconductor industry. 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 technology team listed in the back of this document. Düsseldorf, November 2009 Raman Chitkara Werner Ballhaus Global Technology Leader German Technology, Media and Telecommunications Leader 3 Contents A change of pace for the semiconductor industry? Contents Preface .................................................................................................................3 Figures .................................................................................................................6 Tables...................................................................................................................7 Abbreviations........................................................................................................8 A Summary ......................................................................................................10 1 The main results – an overview ...................................................................10 2 Structure of the study...................................................................................11 Guest article by Peter Bauer, CEO, Infineon Technologies AG ........................12 B The semiconductor industry .........................................................................14 1 Market structure ...........................................................................................14 2 Semiconductors in the crisis ........................................................................19 Related discussion: the semiconductor value chain ..........................................23 3 Analysis of the competition ..........................................................................27 4 Summary of results and outlook ..................................................................31 C Technology and trends.................................................................................33 1 Production capacity......................................................................................33 Related discussion: complementary metal-oxide semiconductors (CMOS)......34 2 Feature sizes................................................................................................34 3 Enhanced functionality.................................................................................38 4 Wafer sizes ..................................................................................................40 D Sales forecasts .............................................................................................42 1 The semiconductor market according to applications..................................42 2 The semiconductor market according to installed components...................46 3 The semiconductor market: a regional comparison.....................................49 E Conclusion and outlook ................................................................................52 4 A change of pace for the semiconductor industry? Contents F Methodology.................................................................................................54 1 Sales forecast ..............................................................................................54 2 Interviews with experts ................................................................................54 3 Analysis of the competition..........................................................................54 4 Peers in the analysis of competition ............................................................55 Worldwide contacts for technology ....................................................................56 About PricewaterhouseCoopers ........................................................................59 Authors...............................................................................................................60 5 Figures A change of pace for the semiconductor industry? Figures Fig. 1 The semiconductor industry and its environment ............................15 Fig. 2 Product families of integrated circuits ..............................................16 Fig. 3 Comparison of standard and customer-specific products, as well as typical factors of success .....................................................17 Fig. 4 Semiconductor sales........................................................................19 Fig. 5 Value chain according to Porter.......................................................23 Fig. 6 Front-end production processes ......................................................25 Fig. 7 Back-end production processes.......................................................26 Fig. 8 Breakdown of sales according to semiconductor business models..............................................................................................28 Fig. 9 EBITDA margin broken down according to business models..........28 Fig. 10 EBIT margin broken down according to business models...............29 Fig. 11 Research and development spending broken down according to business models...........................................................................29 Fig. 12 Selling and administrative expenses broken down according to business models...........................................................................30 Fig. 13 Consolidation of the results of the analysis of competition ..............31 Fig. 14 Example of technology cycle for the changeover to new technologies in semiconductor production.......................................36 Fig. 15 Breakdown of the installed worldwide production capacity by wafer size .........................................................................................41 6 A change of pace for the semiconductor industry? Tables Tables Tab. 1 Comparison of profit margins in 2007 and 2008 for different business models ..............................................................................31 Tab. 2 Distribution of the installed worldwide CMOS production capacity according to smallest possible