IBM last week agreed to transfer its semiconductor business to GlobalFoundries. GlobalFoundries will acquire wafer fabs in East Fishkill, New York and Essex Junction, Vermont; IBM’s commercial microelectronics business, which includes ASIC and foundry; over 10,000 IBM patents related to semiconductor manufacturing; and over 5000 fab and ASIC employees. GlobalFoundries will supply all IBM’s 22nm, 14nm and 10nm ICs for the next 10 years. IBM will take a $4.7 billion pre-tax charge to write down the assets of the semiconductor business and to cover paying GlobalFoundries $1.5 billion over the next three years.
IBM began semiconductor manufacturing for internal demand, which was huge when IBM was the world’s dominant computer company. Although exact numbers are not available, IBM was almost certainly the world’s largest semiconductor manufacturer for many years. As IBM became less dominant in computers, its semiconductor division had extra capacity. In 1993 IBM entered the merchant semiconductor market as a top 10 company with $2.5 billion in sales. IBM sold DRAMs (which were invented at IBM), ASICs and microprocessors. IBM withdrew from the DRAM business in 1999 but continued to sell ASICs and foundry services.
IBM leaving the semiconductor business is the end of an era. IBM was one of 34 original licensees of AT&T’s transistor patent in 1952, according to Bo Jojek in History of Semiconductor Engineering. We at Semiconductor Intelligence examined the original 34 licensees to see what became of them. The original 34 companies were from the U.S., U.K., West Germany and the Netherlands. Sony was the first Japanese company to license the AT&T patent, but was not one of the original 34.
It appears only 22 of the 34 companies developed and marketed transistor products. Of the 22 companies, most of them either went out of business or were absorbed by other companies in the 1950s and 1960s. 12 companies became meaningful suppliers in the semiconductor business. What happened to those 12 companies and to transistor inventor AT&T?
- AT&T – semiconductor business was part of Lucent Technologies spinoff in 1996. Lucent spun off semiconductor business as Agere Systems in 2002. Agere merged with LSI Corp. in 2007. LSI was bought by Avago Technologies in 2014.
- General Electric – sold its semiconductor business to Harris in 1988. Harris Semiconductor was spun off as Intersil in 1999.
- IBM – divesting its semiconductor business to GlobalFoundries.
- IT&T Corp. – divested semiconductor business over the years. Most of the remains of IT&T Semiconductor are now part of Vishay and Micronas.
- L.M. Ericsson – sold most of its semiconductor business to Infineon in 2002. Ericsson exited the modem IC business in September 2014 (previously part of joint venture with STMicroelectronics).
- Microwaves Associates – now M/A-Com, still makes microwave semiconductor devices.
- Minneapolis Honeywell – now Honeywell, still makes semiconductor sensors.
- N.V. Philips – spun off semiconductor business as NXP Semiconductors in 2006. NXP is still a top 20 semiconductor company.
- National Cash Register Company – now NCR. Remains of semiconductor business now part of NetApp.
- Raytheon Manufacturing – sold semiconductor business to Fairchild Semiconductor in 1997.
- Siemens and Halske – now Siemens. Spun off its semiconductor business as Infineon Technologies in 1999. Infineon spun off its memory business in 2006 as Qimonda (now out of business). Infineon remains a top 20 semiconductor company.
- Sprague Electric Company – sold semiconductor business to Sanken Electric in 1990.
- Texas Instruments – divested most non-semiconductor businesses in the 1990s. Remains a top 10 semiconductor company.
Of AT&T and the original 34 patent licensees, only Texas Instruments remains as the same company and a significant player. If Siemens’s Infineon spinoff and Philips’ NXP spinoff are included, three of the original 34 licensees are still major semiconductor suppliers today. However compared to the changes in the semiconductor industry over the last 60 years, the changes in suppliers is not surprising. The semiconductor market first exceeded $1 billion in the mid-1960s and the major customers were mainframe computers makers (IBM), the U.S. military and the U.S. space program. Today the market is over $300 billion and the major applications include smartphones and tablet computers – unknown devices until about 20 years ago. The market has gone from single transistor devices in the 1950s to billions of transistors on an IC today.
The global semiconductor market was US$82.2 billion in the second quarter of 2014 according to World Semiconductor Trade Statistics (WSTS). 2Q 2014 was up 4.8% from 1Q 2014 up 10.1% from 2Q 2013. Healthy growth should continue into 3Q 2014. The table below shows initial revenue growth guidance for 2Q 2014, final reported revenue growth for 2Q 2014 and guidance for 3Q 2014 for key semiconductor companies. 2Q 2014 revenue growth versus 1Q 2014 was strong, with 13 of the 15 companies reporting positive growth. The best results were from Mediatek with 18% growth and Texas Instruments with 10% growth. In general 2Q 2014 showed better growth than initially expected. Of the 12 companies which gave 2Q 2014 guidance, 8 exceeded the initial estimate (shown with an upward arrow). The other 4 companies basically met their guidance.
Companies are guiding for continued quarter-to-quarter revenue growth in 3Q 2014. 11 of the 12 companies expect positive growth in 3Q 2014, ranging from 2% to 11%. One-third expect 3Q 2014 growth to be higher than 2Q 2014 and two-thirds expect growth to be lower. However based on most companies beating their guidance in 2Q 2014, the final 3Q 2014 revenue growth will likely exceed current expectations.
What is the outlook for the semiconductor market in 2015? Key semiconductor market drivers are generally expected to show improvement in growth rates in 2015 versus 2014. The International Monetary Fund (IMF) projects 4.0% GDP growth in 2015, up from 3.4% in 2014. Gartner expects combined unit shipments of PCs and tablets to grow 9% in 2015 versus 6% in 2015. Although IDC forecasts smartphone unit growth will slow to 13% in 2015 from 24% in 2014, Gartner expects total mobile phone unit growth to improve to 4.5% in 2015 versus 3.1% in 2014. Our forecast models at Semiconductor Intelligence predict 10% semiconductor market growth in 2014 accelerating slightly to 11% in 2015.
The chart below illustrates various semiconductor market forecasts for 2014 and 2015. The projections for 2014 range from about 7% (WSTS, Gartner, MIC and IC Insights) to about 10% (Mike Cowan, Future Horizons and Semiconductor Intelligence). Based on the latest WSTS data and company guidance, the final 2014 number should be around 10%. The projections for 2015 are much more varied. WSTS and MIC expect 2015 growth around 3%, about half of the 2014 percentage growth. Gartner and Mike Cowan see 2015 at around 5% growth. IC Insights expects 2015 IC growth of 7.5%. Our Semiconductor Intelligence 2015 forecast of 11% is towards the high end. The highest number is from Future Horizons, which expects 2015 growth of “15% or higher”.
If our semiconductor market growth rates of 10% in 2014 and 11% in 2015 are correct, it will mark two consecutive years of double digit growth for the first time since 2003 to 2004. However the growth is nowhere near as strong as we have seen in peak growth years such as 37% in 2000, 28% in 2004 and 32% in 2010. Market growth rates in the low double digits are healthy, but not high enough to indicate excessive growth and a potential significant correction. Our preliminary outlook for 2016 is semiconductor market growth in the 5% to 9% range.
Semiconductor manufacturing equipment continues to recover from a mid-2012 downturn. Based on data from SEMI and SEAJ, bookings (orders) began to pick up in December 2012. The book-to-bill ratio was over 1.0 from December 2012 through February 2014. Billings (shipments) surged in March through May of 2014 driving the book-to-bill below 1.0. The billings surge was likely due to a catch up of shipments from the backlog built up over the prior year. June 2014 billings dropped 17% from May while bookings dropped 1%, driving the book-to-bill up to 1.08.
The outlook for semiconductor manufacturing equipment looks healthy through 2015. Gartner’s July 2014 forecast shows capital expenditures increasing 7% in 2014 and 9% in 2015. Wafer fab equipment is expected to bounce back from an 8% decline in 2013 to 16% growth in 2014 and 9% in 2015. SEMI’s July forecast is for even stronger growth in fab equipment, 23% in 2014 and 9% in 2015. Gartner projects a deceleration in semiconductor market growth from 4.9% in 2015 to a sluggish 2.3% in 2016. Capital expenditures and wafer fab equipment are each expected to decline 4%. A moderate pickup in semiconductor market growth in 2017 and 2018 leads a return to growth for capital expenditures and wafer fab equipment.
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|Wafer Fab Eqpt.
If the Gartner and SEMI forecasts are reasonably accurate, the industry will see moderate growth in the next few years with a mild slowdown in 2015. Not as exciting as some of the wild up and down cycles the industry has experienced in the past, but preferable to most semiconductor companies and investors.