Expect a chip industry shakeout within 10 years
Staff -- Purchasing, 10/21/2004 2:00:00 AM
The semiconductor industry has become inflated with hundreds of suppliers and 40% of them will drop out of the chip market within the next 10 years, according to market researcher Gartner.
"Increasing costs and complexity of design, increased system content and greater flexibility means fewer suppliers will have the capability to supply chips in the future," says Jim Tully, vice president and chief of research for Gartner's emerging technologies and semiconductor group. He says the number of semiconductor suppliers has risen steadily from about 120 suppliers in the mid-1980s, to roughly 550 in 2003. That's too many and within 10 years the industry will experience significant consolidation.
Fabrication plants are becoming extremely expensive, and next generation fabs will inevitably become too expensive for most companies. "To survive, large and costly fabs will need to achieve significant economies of scale, and they will require high volumes of chip production, preferably standard chips that can be produced in a standardized environment with large batch sizes," says Tully. These standard chips will then be customized after manufacture for specific applications. "This will result in fewer chip manufacturers in the future, but it won't result in higher chip prices because the industry is capital-intensive and is highly competitive."
Another key trend in the industry is the growing importance of consumer markets. By 2013, more than 50% of chip sales will be for equipment markets targeted at consumers.
"Consumer markets are normally high volume and the overall market size is large," says Tully. "However, margins on consumer products are very low and the value of individual product categories can be surprisingly small."
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