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As the world continues to fancy smart phones and tablets the notebook market appears to be falling into limbo. Many people believe that smart phones and tablets are the only future for computing devices and that the notebook is a dying product even with its new make-up, i.e. Ultrabook or ultraportable.

At the beginning of 2012 there was much excitement around the introduction of a new form factor called Ultrabook married with Windows 8. At Semico we were also excited about this new platform and expected computer manufacturers to take the general guidelines set forth by Intel and innovate off of them to create an exciting new computing platform. As the year progressed, Windows 8 was delayed and innovation in the design and implementation of the ultraportable lacked creative and critical thinking by designers.

PC manufacturers have taken a defensive posture trying to protect their market share and pricing structure of the computing market versus taking an offensive approach by offering innovative designs. It appears that most computer manufacturers lack the understanding of the consumer and how their usage model has changed as a result of smartphones and tablets. PC manufacturers have taken some of the smartphone and tablet innovations but are only incorporating them in bits and pieces and not embracing them in their totality. We believe this is a major mistake and one reason why we see a slower adoption rate for these new platforms.

This week Intel confirmed that it has left the WSTS organization and, as such, will not be participating in the industry monthly data collection. Additionally, AMD pulled out of WSTS late last year. These are two significant players whose information will not be part of the official survey results.

Is this really a big deal?

It is disappointing to hear that these two companies do not see the value in participating in data collection for the semiconductor industry. As an analyst firm, Semico Research utilizes the monthly, quarterly and annual data as one of many reference points to triangulate our forecasts.

But Intel and AMD are not the only significant semiconductor companies that do not participate in the WSTS reporting structure. Other non-reporting members include:

Generally I would say that my observations drew me to the conclusion that most of what was at CES this year was improvements on existing products technologies.  That is I didn’t see anything that was totally revolutionary.  There were two announcements made at keynote speeches that I found quite intriguing.

Qualcomm CEO Dr. Paul Jacobs gave the opening keynote speech on Tuesday, January 10^th.  During his presentation he invited Liu Jun, President of Lenovo mobile internet and digital home group on stage for an announcement from Lenovo.  Jun proceeded to demo his company’s SmartTV that is being powered by Qualcomm's snapdragon SoC. The TV is currently only available in China but what I found interesting was that Lenovo was expanding its product line into the consumer’s living room. It’s also a feather in Qualcomm's hat, as it expands Qualcomm's market penetration into televisions.

Several hours later at an afternoon keynote speech Intel’s CEO Paul Otellini also brought out Liu Jun, from Lenovo for an announcement. Liu Jun proceeded to announce that Lenovo would be producing a smart phone powered by Intel's atom. Yet another market that Lenovo is continuing to expand into.  And what a great win for Intel.  They've been targeting the atom processor for smart phones and now they not only have Motorola, an established player in the cell phone market, but they also have a partner with a built in connection to the China market.

Plug-in electric vehicles are here to stay and Semico Research believes that these vehicles will be in high demand by consumers. There are many advantages that electric vehicles provide.  A lower gas bill is just the start.  They also have fewer moving parts resulting in higher reliability, a quieter motor than internal combustion vehicles, lower maintenance costs and significantly lower operational costs.

Here at Semico we already have two employees with plug-in electric vehicles. (We only have 10 employees.)  I just recently acquired a Chevrolet Volt and our CTO, Tony Massimini, purchased a Nissan Leaf. Both cars have their unique advantages and disadvantages.

The Chevy Volt is nicely designed, well put together, with a solid feel and good crisp handling. From a performance standpoint the Volt’s electric motor is comparable to a 250HP internal combustion engine with 273 pound-feet of torque.  This rating is benchmarked at all RPMs. The single speed electric motor eliminates the transmission contributing to a simpler design.

The Chevy Volt has a 16 kW battery of which 10 kW is dedicated to the all-electric propulsion.  The remaining 6 kWs is a buffer for use during the extended range mode and for redundancy to ensure long battery life.  The battery life is rated for 100,000 miles.

At the Semico Summit this week Jim Feldhan said “2011 will see revenue growth of 8% however the Semico IPI indicates the second half of 2011 as the beginning of the next market slowdown.” What other evidence supports this hypothesis?

• Approximately 100 tablet models are being introduced this year, each with a market share goal of more than 1%.  There will be winners and losers.  The result will be excess capacity and inventory in the channel as these models shakeout. In terms of semiconductor ASP's, the supply chain only has to be few percent points out of equilibrium to cause prices to crash.  We’ve seen it in the memory market many times.
• The smart phone is considered the “promise land”. A market that continues to grow at double-digit rates with increasing semiconductor content is an irresistible market. However, there is a similar threat in the smart phone market.  Overbuilding of smart phones will result in a production pullback in 2012 contributing to excess capacity and inventory leading to falling ASP.

While we would expect a semiconductor downturn to produce negative semiconductor revenue, Semico has identified several factors that will dampen the severity of the downturn.

The strongest earthquake ever recorded in Japan occurred Friday at 2:46 PM local time.  The earthquake and resulting tsunami were so powerful, the island shoreline was moved 8 feet!  Following the massive 8.9 earthquake was a tsunami that unleashed further devastation.  In the ensuing hours, additional damage reports coming from Japan reveals how damaging this quake really was.  Two nuclear facilities with a total of five reactors received severe damage.  One facility that contains three reactors is an older GE design commonly found in the U.S. as well.

As of today, there have been two explosions.  An explosion shattered the building housing the nuclear reactor on Saturday.  Although government officials are claiming that the metal containment vessel surrounding the reactor is still intact, clearly the situation is getting worse, not better.  Rods have been exposed twice, resulting in a partial meltdown.  At this point, the best case scenario will be to stop the nuclear reaction, cool the facility down, encase it in concrete, and abandon the facility.  This would leave Sendai in an electricity deficit from the closure of 3 to 5 reactors.  This certainly will cause some problems for the semiconductor and related manufacturing facilities in this area as they are electric power hogs.

Here we go again!

Speculators and  the uncertainty in the Middle East have once again fueled oil prices to its highest levels since 2008.  While Libya only contributes 2% to the global crude oil production it is a major regional player. Libya is Africa's third-largest crude producer and has the largest oil reserves in Africa, approximately 44 billion barrels. The world consumes 87.5 million barrels of oil per day.

Today crude oil hit $92 a barrel on the New York Mercantile. Brent crude hit $106 per barrel on the ICE future exchange. As these price increases work through the supply chain we expect to see gasoline prices continue to rise. World economies continue to gain momentum and energy consumption is expected to increase. Don't be surprised if gasoline hits four dollars a gallon in the U.S. this summer. As long as the price of crude oil does not reach $150 a barrel, Semico believes the economic recovery will continue.

Over the past two years the semiconductor industry experienced one of the most dramatic business cycle swings in the history of the industry. Through the ups and downs, semiconductor technology continued to advance on a two-year cycle. But it’s more than just the electronics. We are changing the way we work, socialize and entertain.

Essentially, we are changing the way we live. In order to provide the functionality that consumers want, new electronic devices are smart, connected, and always on. We are demanding more bandwidth and more storage. This ‘connected’ phenomenon is driving a new round of upgrades to the Internet infrastructure. This includes server farms and fiber-optic highways. In addition to the tsunami of consumer electronics, businesses are finding ways to use these products to make business operations more efficient.

Semico Research sees the semiconductor industry entering a new frontier. But it’s not just the semiconductor industry that will benefit. The entire supply chain can reap the benefits of the last several years of research and development. The Semico SUMMIT is the industry's premier executive level conference that will focus on this changing electronics landscape and how to take advantage of the change. A company’s ability to understand and prepare for the upcoming ‘new frontier’ may result in its viability and profitability as the frontier reveals itself. This is an event no executive should miss.

The WSTS/SIA released the August monthly semiconductor sales statistics Friday. Worldwide revenue was right in line with Semico's forecast for the month of August. Worldwide sales were 0.4% higher than our forecast adding to our confidence that the market will top $298 billion or 31.8% growth for the year.

This is the same forecast number that we've had for several months. The real question that everybody is asking now is, how does 2011 look? Our monthly inflection point indicator still points to a healthy first half. Check out our IPI report (sent to subscribers on Friday, Oct. 1) for more information on the third and fourth quarter. We believe 2011 will produce a 9.5% growth for industry revenues. The semiconductor industry will exceed the $300 billion mark for the first time in history!

While the US economy may still appear to be on shaky ground, the recession has ended and economic strength is slowly improving. However, it will continue to take some time for the macro-economy, including employment, to log significant gains. But don't let the employment numbers fool you. The new consumer buying patterns have changed with electronics on the top of everyone’s wish list while cars and houses have dropped significantly. Furthermore many of the other economies around the world in countries such as China, India, Brazil, Taiwan and Korea are showing sustained strength and growth.

Jim Feldhan
President

2010 will go down in the history books as one of the greatest recoveries the semiconductor industry has experienced. Contributing to this recovery was the fact that the industry underinvested prior to the downturn. In addition, the fears and uncertainty surrounding the length and depth of the recession and its impact on electronics sales resulted in an overreaction by the supply chain which stripped inventories to near zero. As it turned out, electronics is one of the segments that has fared the best during this recession. As a result the supply chain has been in a catch-up mode for the past year.

Housing continues to languish with foreclosures, falling prices and restricted banks loans. The automotive industry has made some nice recoveries yet is still well below production levels from just a few years ago. The new consumer is different. They are younger and two things are apparent. One, cars are not the highest priority for these consumers. Two, buying a house is also not high on the priority list. What is a priority is the ability to have access to social networking, games, videos, pictures and music. These priorities drive consumers to upgrade their smart phone, iPod, tablet/iPad and notebook. These products are priced such that they do not require credit and are considered a necessity in today's world.