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The inflection point: The future isn’t what it used to be
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As we look forward into 2013, the uncertainty in the semiconductor sector is readily apparent when one examines recently announced 2013 growth predictions for the industry ranging between -1.1% and 12.4%. Obviously time will tell, but ATREG is more interested in understanding the underlying dynamics of the semiconductor market and their long-term implications for the industry as a whole.
What was a growth sector for the past three decades has reached middle age, bringing with it some unwelcome changes. Cyclicality can mask a gradual maturing of an industry, as can macro-economic shocks. However, the evidence is clear – slowing industry growth and an increasingly competitive market is leading to a compression of valuation multiples as investors no longer expect the same robust returns from the sector.
The semiconductor industry is at an inflection point:
- The fabless operating model is becoming less attractive as factors such as the over-reliance of foundries on their geographic concentration, a possible time-to-market disadvantage, and the lack of the virtuous cycle of design and engineering have caused investor sentiment to cool. We believe fabless companies will begin taking a more involved role in the manufacturing process.
- The rise of the branded OEMs in the fast-growing mobile market is leading to supernormal profitability and large stockpiles of cash. OEMs will use any means necessary to ensure the continued supply of advanced semiconductor components.
- Increasing vertical re-integration, led in part by OEMs, is expected to continue in response to increased pressure on all facets of the semiconductor supply chain.
In the context of this changing landscape, we see four possible futures emerging for the industry – three of which are detrimental for incumbent chip suppliers. We profile these four futures in the first paper of a brand-new ATREG Thought-Leadership Series entitled The Inflection Point: Macro Forces & Emerging Trends That Will Reshape the Semiconductor Industry Through 2016. My colleague Barney Silver recently presented an overview of these findings at ISS Europe 2013 in Stresa, Italy. If you were unable to attend the conference and are interested in learning more, I cordially invite you to request a copy of our paper and share your thoughts on this topic with me at info@atreg.com.
Sincerely,
Stephen Rothrock
President / Managing Principal
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Come hear ATREG speak at SEMICON China
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ATREG has been invited to speak at two SEMICON China events in Shanghai this month. On March 17, President & Managing Principal Stephen Rothrock will present The Inflection Point: Macro Forces & Emerging Trends That Will Reshape The Semiconductor Industry Through 2016 as part of the conference’s Emerging Semiconductor Technology Symposium. With the global semiconductor industry at a major inflection point due to various intersecting trends impacting virtually all semiconductor companies, this presentation looks at the critical factors and emerging manufacturing models that will reshape the industry and competitive landscape in a dramatic new fashion during the next three to four years.
On March 18, Senior Advisor Rex Sherry will present Worldwide M&A Trends In The Pan-Semiconductor Industry at SEMICON China’s Tech Investment Forum – China 2013. This presentation will focus on the strategic implications of consolidation on the industry going forward.
We look forward to seeing you in Shanghai!
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Executive Q&A: Jean-Paul Beisson, CEO, Altis Semiconductor
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The foundry manufacturing model is well rooted within the semiconductor sector. While the largest foundries capture much of the headlines, there are a number of smaller specialty foundries aiming to fill gaps in the market. ATREG recently sat down with Jean-Paul Beisson, CEO of French company Altis Semiconductor, to discuss the role of specialty foundries, differentiation, evolving customer needs, and potential for consolidation.
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ATREG facilitates sale of Maxim Integrated’s Irving, TX fab
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ATREG is pleased to announce that after being retained as advisors by Maxim Integrated, it has successfully facilitated the sale of the company’s idle semiconductor fab based in Irving, TX to Quality Technology Services (QTS) who plans to transform the facility into a state-of-the-art data center. QTS provides more than 800 enterprise businesses with fully managed core data center services with over three million square feet of secure data center infrastructure based all over the country. The acquisition of the Irving facility establishes QTS’ presence in the fourth-largest data center market in the U.S.
With little semiconductor demand for a fab shell in a saturated market, the 660,000 sq. ft. Irving fab located on a 39-acre campus had been unutilized for five years and was costly to maintain. A creative way had to be found to market the facility to new buyers who were able to adaptively reuse the buildings and advanced infrastructure. Like many semiconductor campuses, the Irving site is powered by an on-site 140MW dual-fed substation. The facility's diverse fiber network connections allow QTS to provide carrier-neutral connectivity with maximum flexibility, giving customer access to the area's numerous network providers.
To attract interest from data center companies, ATREG commissioned an independent design analysis of the site’s extensive electrical power, cooling capacity, and potential data center rack layout, and thereby helped Maxim Integrated achieve good value for the facility in the only sizeable empty fab sale to occur in the last several years.
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