Big Changes in the Chip Industry
Rothfeder, Jeffrey, Chief Executive (U.S.)
More functions combine as circuit sizes plunge.
It's a classic business irony: Just as semi-conductor companies are enjoying arguably their greatest burst of creativity-chiefly, integrating the most complex multimedia, graphics, memory and logic applications into smaller circuits, transistors and chips-their industry's future couldn't be less certain. "Having great integration is good but if we can't make money, we are in trouble," says Nam-Sung Woo, executive vice president at Samsung Electronics. "Semiconductor companies need products that sell 100 million units per year to make money on the chips we put in them. Cell phones so far fit that category. We are desperately looking for something else, but what else is there?"
That question was at the heart of a wideranging discussion at a panel entitled "Convergence in Semiconductors." As multiple combinations of telecommunications, audio, video, digital photography, shopping and 3-D gaming increasingly share the same device, chips will be required to deliver greater power in more compact spaces.
There are a host of ideas for achieving that. For instance, a superchip with millions of transistors that can manage an infinite number of applications could be designed. Or perhaps each chip in a series of chips could carry different types of related circuits, such as logic, memory and analog signal processing. Currently, these functions are generally assigned to separate chips. Whichever approach is chosen, chipmakers will have to escalate spending on R&D to produce design breakthroughs. Problem is, there's uncertain return at the end of the development cycle.
An artful analysis of the challenge was provided by Philippe de Marcillac, senior vice president at IDC. De Marcillac noted that the information technology sector is growing at only 6 to 7 percent per year in large markets and a bit more in emerging regions, while the growth rate in telecom is lower still. There are a few product segments, particularly cars and medical equipment, in which the demand for semi-conductors will rise, but these are relatively small markets compared to the most promising consumer electronics areas, such as video games.
And while consumer electronics applications are likely to spur chip sales, if history is a guide, any big gains will soon be erased by price erosion and competition, de Marcillac contended. "So we have a slowing core market and a small group of niche markets and yet there is going to have to be big capital investment," he said. "Semiconductor convergence sounds very expensive to me."
Although it may be costly, said Moon S. Song, CEO of Korean handset maker Pantech and Curitel, convergence is nonnegotiable. As Song put it, application integration is "critical in providing the right features at the right cost" for cell phones, which are by far the most profitable market for semiconductor companies. Annual handset sales were just shy of 800 million units last year compared to about 200 million PCs.
To keep sales of handsets at these levels, in the next 24 months, chip companies are expected to unveil advances in convergence design. Among them: Circuitry on telecom chips will shrink from 130 nanometers to a state-of-the-art 90 nanometers by the second half of this year. And by 2007, the size of circuits is likely to be reduced to 65 nanometers. As the chips become smaller, the applications etched into them will increase. "Today, we still require separate chip processes to handle audio and video signals," but with video via cell phone now appearing, audio and video "will be integrated in the next generation," Song said.
The strategy of many semiconductor companies is simple: Invest in engineering efforts aimed at feeding the evolving requirements of their existing large markets, such as cell phones and PCs, while seeking new revenue channels for these chips or similar ones. There was some disagreement on the panel, but no shortage of suggestions, about what will be the next profitable semiconductor product segments. …