New markets, new designs

Electronic News,  Jan 5, 1998  by Jim DeTar

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Mountain View, Calif.--In 1998, semiconductor sales will be driven by the market for new categories of systems and attached devices like DVD (digital video disc) and high-speed modems. Although unit sales of semiconductors will increase, total revenues will not grow as much because manufacturing capacity will remain abundant, with several industry leaders predicting a slight overcapacity in the coming year.

These new types of devices will require new design techniques, according to Chet Silvestri, president of Sun Microelectronics. "I think these new thin-clients, whether in devices you will carry in your pocket, in TVs or briefcases, will drive very different behavior. First of all, it's not the Intel-Microsoft Windows, or Wintel, combination, so price-performance will be under close scrutiny. The instruction set doesn't matter so that creates a more level playing field. Also, everyone will try to get system-on-a-chip. The way we look at designing microprocessors in these areas will change."

Richard Dracott, Intel marketing director for the Microprocessor Products Group (MPG) said, "I expect to see healthy growth. We will see similar levels of year-to-year growth (as in 1997).

"In general we go through fluctuations and they seem to be self-correcting pretty quick. The old supply and demand model works well. We'll go through this period of relative softness and it will straighten out. People will be ready to move to 100MHz fairly quickly," Mr. Dracott said.

Dan Mahoney, VP and deputy GM of Hitachi Semiconductor, predicts, "The market will grow faster in 1998 than in 1997. Last year, the market declined on an aggregate dollar basis because of the price collapse in the memory market. In 1997, we expect the market grew modestly, on the order of six percent worldwide and 10 percent in the U.S. In 1998 we expect the market to exceed 10 percent growth. In microprocessors and microcontrollers it will be as high as 20 percent, faster than the market overall."

In the semiconductor industry for 1998, the system-on-chip paradigm will continue to gain momentum and many semiconductor industry leaders think this year will see strong growth in that area. There is consensus, however, that the coming year will not yet be "The year of system-on-chip," that there are still a variety of hurdles to be overcome, including standards development, interoperability, assembling the cores and finding places to buy, test and debug them. These concerns make it unlikely that it will become mainstream this year.

Len Perham, president and CEO of Integrated Device Technology (IDT), said: "I don't think '98 is the year of system-on-a-chip. The technology is not ready. There is still a great deal of evolution in how you package things. The PC architecture that has been with us 16 years is not suited for integration. We need to change those intefaces. 1999 is the year when it starts to make some sense."

Mr. Mahoney commented: "With regard to silicon, one of the hottest trends is the push for embedded memory--DRAM and flash both. You can talk about system-on-chip a lot, and there is a lot of interest and discussion. But the reality of where the market is going is it's not going to migrate that far.

"Embedded DRAM and flash are the technical issues that are going to start to move into mainstream production and extend the reach of microprocessors in every application under the sun. System-on-chip discussion keeps people interested in the future of microprocessors and it's part of the roadmap vendors need to address. There are so many issues there," that have yet to be resolved, Mr. Mahoney said.

Mr. Perham also predicted the falling cost of MPUs will finally make a dent in the relatively high price tags of portable computers in the coming year. "Low-cost desktops are with us, but sub-$1,000 laptops have not been available. Low cost portables will emerge."

Still Too Much Capacity

Semiconductor manufacturing capacity will likely be slightly in an oversupply situation this coming year due to the tremendous amount of building that has been taking place this year and last, coupled with slower growth in the PC market and prospects for continued strong sales growth overall, according to the SIA's World Semiconductor Trade Statistic (WSTS) statistics-gathering arm and various market research firms.

But it depends on the geometry desired. IDT's Mr. Perham claimed: "0.35-micron down to 0.25-micron capacity has already become a little scarce." Mr. Mahoney put it more definitely, "There will not be enough 0.25-micron capacity in 1998 and there is no question that the investment rate is declining. That is going to bring capacity back in line with demand."

Some prices of raw materials will rise. "(Prices of) Eight-inch wafers have drifted up. You could have bought wafers a year ago for $1,500. The total is moving up to between $1,750 and $2,700," says Mr. Perham. "State-of-the-art manufacturing capacity will become a little scarce. There is an enormous amount of DRAM and SRAM (capacity) and those prices will stay tough. The only question is the impact of a 20 to 25 percent decline in the (value of Asian producers') money."