March 23, 1998, TechWeb News
Chips are up in Europe -- Region's semiconductor market is projected to grow faster in 1998 than rest of the world
By Patrick Walsh
Although economic turmoil in the Far East has sent shivers throughout the global electronics industry, Europe's semiconductor vendors are more optimistic than they have been in years.
In fact, analysts' estimates on both sides of the Atlantic indicate that this year, Europe's semiconductor market growth will likely outpace that of any other region, spurred largely by increased domestic consumer spending and demand for newer technologies.
"Things are changing quickly in Europe," said Jean-Philippe Dauvin, chief economist and group vice president at SGS-Thomson Microelectronics Inc., St. Genis, France. "During the past three years, Europe was only standing on one foot by relying solely on exports. But we've recently started to push consumer spending, which we expect to increase from 1.5% to about a 2.1% growth rate."
Dauvin expects Europe to be the only region to post an increase of more than 10% in semiconductor sales this year. He projects 13% growth in Europe, 10% in the Americas, 8% in Asia, and less than 6% in Japan.
Another plus is the improved investment climate, according to Dauvin, who predicts that investment this year will rise 11% in France, 9% or 10% in Germany, and about 7% in the United Kingdom and Italy.
"Last year was nothing special; growth was about 6%," said Marc Vodovar, a market researcher at Texas Instruments Europe, Nice, France. "But we're expecting double-digit growth in 1998. It may not be a great year for semiconductor sales worldwide, but it should be a good year, and Europe is going to have a slightly better year than any other region."
TI is projecting growth of 13% or 14% in the European semiconductor sector and 10% in the worldwide market.
Taking a more conservative view, Gartner Group's Dataquest Division projects that European semiconductor shipments will increase by just less than 5% and worldwide shipments will edge up only 4%
Europe's chip makers are benefiting significantly from their market's diversity, coupled with increased consumer demand for cutting-edge technologies in such markets as mobile telephony, digital broadcast, and automotive electronics.
"There's almost an insatiable demand for mobile telephones, and companies like Ericsson, Nokia, and Alcatel are benefiting from that, which is encouraging," said Peter Magowan, vice president of European operations at Advanced RISC Machines (ARM), Cambridge, England.
"All the major semiconductor vendors are moving heavily into wireless infrastructure applications because mobile is dead without infrastructure," Dauvin said. "So it's a huge market. And we're seeing the very beginning of digital TV, with six or seven direct broadcasting operations starting up.
"With automotives, the trend is for middle-range cars to have as much electronics as higher-end models," he said.
GPS and other emerging automotive applications, such as computer games, DVD, e-mail, and Internet access, are creating opportunities for chip makers.
"Virtually every auto manufacturer in Europe offers a navigation system today," said Patrick Johnson, manager of in-car computing operations at Intel Corp., Santa Clara, Calif. "Alleviating traffic problems was the genesis of the navigation industry in Europe; but if you look at where we're at now, there are a lot of new reasons, like increasing productivity or entertainment, that these systems address within the vehicle," Johnson said.
Bucking the global trend
Confidence is high, and some observers think Europe's chip vendors may avoid the difficulties bedeviling their overseas competitors.
To some, the DRAM supply and demand fluctuations that play such a large role in the more PC-centric United States and Asia seem less frightening for the more highly diversified European electronics industry.
"PC production is limited within Europe, so DRAM shortages haven't really hit us because we don't have the PC manufacturing base here," said Magowan of Advanced RISC Machines.
But not everyone thinks Europe is immune from the DRAM debacle. Many believe that - with DRAM pricing way down and production capacity way up - pressures on profit margins and investments are bound to affect all regions.
"A significant portion of the DRAMs used in Europe are shipped from local facilities," said Joe D'Elia, an analyst at the Gartner Group's Dataquest Division in London.
Fujitsu Ltd., Hitachi Ltd., Mitsubishi Electric Corp., NEC Corp., Siemens AG, and Texas Instruments Inc. produce DRAMs in Europe.
Pricing competition in DRAMs has spilled over into other European chip markets, D'Elia said. But he believes DRAMs aren't the biggest storm cloud hovering over Europe's semiconductor sector.
The biggest perceived danger is Asia's financial turmoil, D'Elia said. South Korean companies have put on hold some of their expansion plans in Europe, but this may be offset by some as-yet-unannounced plans by Taiwan companies to invest in Europe.
Others believe that the Asian crisis, though apt to ripple through Europe's overall economy, seems unlikely to cause great disruption in the region's semiconductor business.
"Everyone is worried about the state of the Asian economies, but I don't think it's going to have a lot of impact on Europe's electronics sector," TI's Vodovar said.
"Looking at the rate of exchange of Asian countries, it's obvious that they're not going to have as much money to spend on the consumer products that we export. But we don't export many PCs or telephones to Asia, so there's not as much impact on electronic products. The electronics trade is more the other way around, where we're receiving those types of products from Asia."
"The Asian issue will impact European banks, because the banks have a lot of money and credit in Asia," ST's Dauvin said. "The European economy will be slightly impacted, but it will not be a big deal because our vulnerability is not that great." He said that he sees a potential bright side to the Asian crisis for European financial markets. "Investment growth is spurred by the interest rates remaining low and the Asian issue, because banks don't want to put their money in Asia, so they have more money to invest here."
With the impending standardization of Europe's currency and the improved prospects for uniformly low interest rates and increased foreign investment, Europe's sturdier economic foundation is expected to help support robust growth in the region's semiconductor industry.
"Europe seems to have a high potential for financial investments," said Andre-Jacques Auberton-Herve, president of Soitec, Grenoble, France, a maker of silicon-on-insulator wafers. "Investment banks want to increase their presence in Europe because they're beginning to see it as a market that presents a lot of opportunities. The investment interest may be spurred on by the Asian crisis, but the euro is key, as it will cause currency risk to be suppressed.
"Everyone expects interest rates to move in the right direction over the long term," Auberton-Herve said. "There is some risk of increased interest rates in the low-rate countries like Germany and France because of their averaging with the high rates of Italy and Spain. But the weight of Germany and France is quite high in Europe, so they should have a lot of influence."
Investment surveys, stock market gains, and economic analysts all point toward a better business climate.
"The stock index in Paris is hitting record after record," TI's Vodovar said. "It's not the most dynamic exchange in Europe, but it's been breaking records. So it does seem that there's more money here, and all the latest investment surveys show that the prospect of large companies investing in Europe has increased."
A new culture
Changes in Europe's economic climate are coinciding with its adoption of a more global corporate culture.
"The European business climate is becoming easier to deal with for outsiders," said Jeff Katz, vice president of marketing at Atmel Corp., San Jose. "That's been going on for the past few years, and it's expected to continue. It has become the same as most other geographic regions today - not because it's now an homogenized environment, but because there aren't any more problems or any worse ones in Europe today than there are anywhere else."
Atmel recently increased its European presence by acquiring Temic Telefunken Microelectronic GmbH's IC business from Vishay Intertechnology Inc., which had recently bought Temic in an effort to enter the discrete-semiconductor market.
"The technology they have in their two IC divisions, in Germany and in France, is very complementary to our technology," Katz said. "They have expertise in automotive and radio-frequency communications devices, and we have expertise in nonvolatile-memory and computing functions; so together, we can do complete, minimum-chip-count, highly integrated solutions for automotive and telecommunications applications."
The Temic acquisition is one of a flurry of high-profile deals frequently offered as further proof of the globalization of the European semiconductor business.
Mitel Corp., Kanata, Ontario, recently acquired the major portion of GEC Plessey Semiconductors, Swindon, England, for $225 million. Mitel, which already has fabs in Caldicot, United Kingdom, and Jarfalla, Sweden, is gaining access to Plessey's 0.35-micron digital CMOS wafer fab in Plymouth, England.
Time will tell whether this acquisition trend will prove a boon or a bust.
ARM's Magowan sees the shakeout as a peril to midsize semiconductor vendors. "When you decide to become a supplier of integrated chips, you've either got all the required [intellectual property] or you're out.
"The large vendors are investing at the right level and continuing to acquire the core technologies that the market requires. And there will always be a space for small firms who are playing in niche areas. The ones who will suffer most will be the medium-sized companies. They will have to either grow very large or become a small niche player, or they'll go to the wall."
Three major manufacturers - Philips Electronics N.V., Siemens, and ST - account for 80% of Europe's semiconductor production, Vodovar said. "With the smaller companies, like Plessey and Temic, it really does not make that much difference to the overall picture when someone else buys them. The effect is generally positive from an employment standpoint.
"Small startups are important because they're dynamic and innovative. But generally the fate of small companies is to be bought by bigger companies. The acquisitions are not a problem as long as there are still enough startups to drive the innovation," he said.
-Patrick Walsh is a freelance writer based in Peekskill, N.Y.
Copyright (c) 1998 CMP Media Inc. |
