30+ Years of Semiconductors – The base matters!

Although CMOS technology in semiconductors was patented in 1960s, commercial ICs and electronic systems based on CMOS ICs started picking up in 1970s, and the real growth with personal computer (PC) market took place in 1980s. Then Intelmicroprocessors started dominating the semiconductor market with increasing processing speed and likewise high memory demand. To catalyze that growth from software side was Microsoftwindows; we have all heard about “Wintel” jargon that ruled the PC market with PCs having Intel processors and windows running on them. The market grew most rapidly in 1980s (CAGR 16.8% in 1989) and 1990s (CAGR 13.6% in 1999) before two recessions hitting the market in 1[SUP]st[/SUP] decade of the new century bringing the CAGR down to 0.5% in 2009.

Thanks to IC Insightsfor providing this statistics in its report. The CAGR in this decade is expected to be at 4.1% (that is less than 9% averaged over 30 years), even though wireless networks and IoT connections are expected to rise at maximum CAGR of ~19% to ~22.5% while Cellphone market is expected to maintain CAGR at around 9%.

The point to note here is that even after global recession in 2001 due to dot.com and 2008 due to subprime crisis, the base semiconductor earnings have remained steady and has been rising in this decade. True, in 1980s and 1990s it showed maximum growth, but the base was very low ~$10 – $43B in 1980s which went up to ~$139B in 1990s. Today, in 2014, it’s expected to be at $333B. So, even 4.1% CAGR in this whole decade is not bad (in my opinion, of course I would be happy if it would have been moreJ), the base is what matters. Any more growth due to IoT and Smartphones would be icing on the cake! IoT is expected to see maximum growth, but with low base at ~$3.3B and wireless at ~$9.4B.

It’s a common phenomenon; a small cap company grows much faster compared to a mid cap and then a large cap. There are several pitfalls for a mid cap company to become large cap, but after attaining large cap status, it becomes steady. Semiconductor industry is in sweet spot; not company wise, but sector wise it is seeing a large cap phenomenon. So, definitely, it will not see double digit growth, but the base is high enough for it to sweat to retain single digit growth.

Today, semiconductor has entered into every aspect of our life and has become an essential ingredient. Why was the semiconductor market more or less steady during recession without growth or minimal decline in particular years? The essentials had to be maintained for consumption; expansions were curtailed, consolidation of businesses happened which stopped growth; however people had to keep their PCs running over the network, office equipments working, cars with all electronics, home appliances working, medical and healthcare taking their care and so on. Semiconductor has become a daily consumption like food for people.

It will not go down from here. Yes, it can rise with new growth drivers like IoT. Okay, in this decade IoT can rise at ~22% with low base, but in the next decade we can see the same story – the base will steadily increase with high % CAGR initially and then moderating before decreasing! Let’s see.

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