April 2010

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. 

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.

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?