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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (6809)	8/18/2003 1:50:59 PM
From: Proud_Infidel	Read Replies (2) \| Respond to of 25522

Cell phones: Too many vendors, not enough market Morry Marshall Silicon Strategies 08/17/2003, 1:00 PM ET The following column was provided by Morry Marshall, vice president of strategic technologies at Semico Research Corp., a Phoenix, Ariz.-based market research firm. At the recent Semico Impact Conference, Convergence and Connectivity 2003, and at many other recent semiconductor industry meetings; the topic has been cell phones, cell phones, and cell phones. There is a great deal of interest in the cell phone road map and how to participate. Cell phones are indeed a ray of hope for a semiconductor industry when that has experienced depressed sales for two years. But, be careful; the semiconductor industry has been here before. In 1984 the dominant topic at most semiconductor meetings was the personal computer. Total worldwide semiconductor sales had increased 45.8% compared to 1983. The forecasts for PC growth were rosy, and many believed that an ongoing explosion in PC sales growth would lead to semiconductor sales growth above 30% for several years. What actually happened? Semiconductor vendors, especially DRAM vendors, believed the optimistic PC growth forecasts and vied to capture market share. When PC sales growth failed to meet expectations, the result was a glut of DRAM and other PC components and a 16.5% decline in total worldwide semiconductor sales in 1985. There were more than two hundred ICs in a PC in 1984. Based on that component count, it seemed as if there would be more than enough business to go around for a wide variety of semiconductor vendors. Again, what actually happened? Integration and competition lead to a radical narrowing of the PC semiconductor vendor base. Many semiconductor manufacturers' markets disappeared as their product's functionality was absorbed into other chips. Others semiconductor manufacturers dropped out because they could no longer compete. PC core logic chipsets are an excellent example of both trends. Core logic chipsets combined numerous functions that had been performed by separate ICs. The manufacturers of those separate ICs lost their markets. Then competition reduced the number of PC core logic manufacturers. In 1994 there were more than fifteen manufacturers of PC core logic chipsets. Today, there are only three or four remaining. There are similarities between the cell phone semiconductor market today and the PC market in 1984? First, although plans for cell phone unit shipments based on the wildly optimistic forecasts of 2001 have been reduced, many semiconductor companies are eager to believe forecasts that are still too high. Second, cell phones are in a relatively early stage of development and will become much more highly integrated. Third, there may be too many cell phone semiconductor suppliers competing for market share. In 2001, conventional wisdom was that cell phone unit shipments would reach 800 million to 900 million units by 2006. 2002 was the worst downturn in semiconductor history, minus 32%, and much of that downturn was attributable to overbuilding in 2001 for unrealistic cell phone and Internet communications forecasts. Today, Semico Research Corporation forecasts a CAGR of 9.7% for cell phone unit shipments from 2003 through 2007, reaching 600 million units in 2007; but many companies are acting as if the CAGR were still going to be in the high teens. Cell phones have already reached a fairly high level of integration, but there are ten or more ICs in many designs. Even with added features such as cameras, internet access, and who know what else, Semico believes that during the next five years the micrologic IC count will be reduced to at most two ICs, a front end IC and a baseband IC. At least one major supplier believes that the entire cell phone can be integrated into one micrologic IC. As with the PC, the markets for some semiconductors are going to disappear when their functionality is integrated into a higher level IC. Unless a company is capable of producing the one or two chips that will be remaining in a cell phone in 2007, they will have at most a very small market. There are at least four major players in the cell phone IC market in 2003, and more than ten other mid to small size players. The goal of all the major players seems to be to dominate the market. The goal of the minor players is sometimes unclear. Presumably, they would want to maintain a presence in the market to be an attractive acquisition at the least. If we assume, conservatively, that a 30% market share is dominance and a 10% market share is maintaining a presence, then a problem immediately becomes apparent. The sum of the market shares of all of the current players, if they achieve their goals, would be at least 220%. Since this is mathematically impossible, there is going to be some fallout. Some semiconductor companies will have to leave the cell phone market. It is often said that the semiconductor industry is a boom or bust industry. Perhaps it is also a binge and purge industry. When the "next big thing" comes along, too many companies want to get on board and capture a share of the market, even a dominant share. The inevitable result is overproduction and a crash. The cell phone market is a huge, attractive market. It will be extremely profitable for some companies - but watch out. Be aware of the possibility of another buildup and crash.