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April 2010

A Step Forward Creates Powerline Networking Opportunities

According to Atheros Communications, IEEE’s P1901 powerline networking draft standard is on schedule to be ratified early this fall. Semico believes that this will spur a high growth phase for powerline networking.

A powerline network makes a lot of sense. It uses the electrical wiring in a home to connect PCs, home entertainment systems, TVs and other electrical or CE devices. The wiring is already there. There is no need to thread expensive new wiring through the walls or attic of a home. Connections are available wherever there is an electrical outlet, and it’s as easy as plugging a module into the outlet. Connections are easy, truly plug and play. So why isn’t it more pervasive?

One obstacle has been the lack of a widely accepted powerline networking standard issued by an internationally recognized organization. The first powerline networking standards were for home automation and did not have enough bandwidth for multimedia. Others that followed did have the bandwidth; but, as usual in the electronics industry, groups of companies established separate standards to vie for market share for their products. The most widely used standard has been HomePlug AV, issued by HomePlug, an alliance of networking industry leaders. More than 40 million HomePlug AV devices have shipped worldwide.

Third World Semiconductor Growth Opportunities

Where is the next semiconductor marketing opportunity?  Maybe it’s not a specific application, geographic region or country but an overlooked portion of the world’s population. 

In the developed world, we drive upscale cars, travel around the world and want to be connected 24/7.   We understand immediately the appeal of stability control, GPS navigation systems, powerful laptops, smart phones, Wi-Fi and 4G. Our expectations taint our evaluation of potential markets. 

The annual GDP per person in developed countries is more than $25,000.   In the US, as an example, it’s nearly $50,000.   But, the annual GDP per person for more than 80% of the world’s population is less than $10,000 per year.   For nearly 40% of the world’s population it’s less than $2,000 per year. For nearly 15% it's less than $1,000. 

Because not everyone is a wage earner, average earnings are less than the annual GDP per person.  If the annual GDP per person is $10,000, for example, the average annual earnings may be as low as $5,000 to $6,000.  Let’s be generous and say it’s $6,000.  That doesn’t correspond directly to an annual salary of $6,000 in the US.   These are subsistence economies.  People raise most of their own food, and a lot of what they need is obtained by barter.  Still, there is far less than $6,000 per year available for discretionary spending in a country with an annual GDP per person of $10,000 and even less in countries with a lower annual GDP per person. 

The Rumor Mill. Apple and ARM? Apple and AMD? ARM and Intel?

Oh it has been a busy week of rumors and speculation in our industry.

First there was the report that Apple is looking at designing in AMD MPUs in future MacBook designs. This should come as no surprise since AMD MPUs are 80x86 and Apple’s PC product line is based on Intel MPUs. Apple is the only major PC vendor that does not offer products with AMD MPUs. I am surprised that it has taken this long for Apple to consider AMD as a second source.

However, this set off speculation that Apple would buy AMD? That makes no sense. Apple would not cut itself off from a major MPU vendor like Intel. Also, there would be legal issues about an OEM buying a key chip vendor that supplies its competitors. How this idea ever made it to print or on-line media is beyond me. I guess it is one way to get attention.

We then had the rumor that came out of England that Apple was considering buying ARM. It was reasoned that Apple was flush with cash, around $40 billion and that ARM looks so attractive. Acquiring ARM could cost about $8 billion. This one makes no sense for so many reasons.

Apple is not the kind of company to make big acquisitions. It goes out and finds small strategic companies and integrates the talent and technologies in the process of building up its own resources. The acquisition of PA Semi for the design team that came up with the iPad A4 processor is a recent example.

Strong Market Conditions Driving Semiconductor Sales Up

Yesterday afternoon Intel reported first-quarter revenues of $10.3 billion with operating income of 3.4 billion and net income of 2.4 billion. Compared to first quarter 2009 revenues were up 44% operating income of 433% net income of 280% exemplifies the strength and intensity of the semiconductor recovery.

Gross margins have recovered to 64% indicating that companies efficiency and the strength of the overall electronics markets. Intel's strong 1Q 2010 performance does not come as a surprise to Semico.  The IPI results from one year ago indicated that the industry would see this kind of growth in 1Q 2010.  Intel is the largest chip vendor and a bell whether company. 

The Semico inflection point indicator, published in the Semico IPI monthly report has forecasted a strong 2010. Although final industry statistics for March have not been released, we fully expect that first-quarter 2010 will be between 45 and 50% above first quarter 2009. Our Outlook for second third and fourth quarter looks very realistic at just over 25%.

Inventories still remain tight and there is certainly some momentum in the order rates that indicate OEMs are trying to build some buffer inventory. This inventory build could quite easily drive revenue growth much closer to 30%. So far we have seen the IPI continue to remain at record high levels and have not seen any indications pointing to the beginning of a downturn for the next 12 months.

Apple iPad Market Update

The Apple iPad has hit the market, at least in the US. It has been shipping well, though not as high as some had predicted. Incidentally, Semico has a conservative and slow roll out scenario for the iPad with sales picking up at the end of 2010 and early 2011.

Apple delivered the first iPads starting Saturday April 3, 2010. At the end of the first weekend about 300,000 units had shipped. Sounds impressive, but around 90% of these were pre-ordered in the weeks leading up to this launch. The huge lines at Apple stores and Best Buy did not materialize. Some estimates had foreseen over 700,000. By the end of the week around 450,000 had shipped. Apparently the early adopters came out in force for Apple. Will they keep the ball rolling? This is not to denigrate the iPad’s early shipments. Rather it shows how hype can drive some rather unrealistic expectations.

It has been observed that iPad’s early success matches iPhone’s initial sales. Some history; the iPhone was introduced in 2007 and sold 1.4 million in the first 6 months. It reached 6.1 million by the end of its first year. The iPod was introduced in 2001 and sold 372,000 in the first year. After opening the iTunes store, the iPod shipped over 1 million in its second year. Both products were introduced into existing markets. Apple was offering innovation to product categories that consumers were already familiar with and was able to take market share.

Indonesia: A Sleeping Giant?

Now that China is well established as a powerhouse in the electronics arena and India as a haven for design activity, at the last Semico staff meeting we asked the question, which country will be the next emerging economy? Growth may come in a number of different forms. China took on semiconductor manufacturing with great enthusiasm. Although India tried, their efforts to attract semiconductor manufacturing didn’t materialize. But cell phone sales to the area have been a real boost for semiconductors.  Semico has observed that in today’s market, copying the economic development successes of the last region doesn’t seem to work. The growing regions must make a mark through some unique offering. Along with China and India, Brazil and Russia have already been identified (BRIC). Which location will be next? Morry Marshall says Nigeria or South Africa. Tony Massimini says SE Asia, i.e. Vietnam or Indonesia. In the April 3-9th issue of The Economist, there’s a blog assessing Indonesia’s global impact. Indonesia has a population of 231.3 million. That puts the country in fourth place after China, India and the U.S. Brazil, who ranks fifth has a population of 193.7 million. Indonesia’s population is relatively young and well educated. In June, President Obama is expected to get a huge welcome home to this area where he spent four years growing up. I suspect the country will attract a lot more attention after that. What do you think? Nigeria? Indonesia?

Apple iPad: Where Will the Chips Fall

There has been intense press coverage of the Apple iPad, but not much about the iPad’s impact on the semiconductor industry. That issue is addressed in a new Semico Research Corp. Market Brief, “Apple iPad: Where Will the Chips Fall?”

An important question is whether or not a new market is being created.  There have been numerous attempts at tablet PCs, beginning with the Apple Newton and the AT&T Hobbit. Until now, all have failed; but the situation has changed.  Three applications have emerged since previous tablet PC attempts: Internet access, social networking and electronic books.  These are ideal applications for a tablet PC.  Will they be enough for the iPad to succeed where others have failed? 

There have been a wide range of analysts’ forecasts for iPad shipments, some as high as ten million units for the first year. Semico takes a more realistic view, forecasting total shipment of 1.8 million tablet PC shipments in calendar year 2010.  Higher volumes will follow.  This time around, tablet PCs will succeed.

The iPad uses a proprietary processor and operating system.  Is this the beginning of a trend away from existing MPU architectures?  Will other tablet, netbook, notebook or desktop PC companies follow Apple’s lead?  What will that do to the MPU market?

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