I just read Daniel Nenni’s blog titled “Is Silicon Valley Gridlock a Good Sign for Semiconductors?” Dan, there is no definitive answer to this, I mean in terms of semiconductors. Let me call it Semiconductor Gridlock in Silicon Valley. Yes it’s good because Silicon Valley promotes research, brings up innovative technology and products, demonstrates to the world the use of those products by consuming those in Silicon Valley and USA, and then scales the production to make it affordable by the masses. Of course during scaling of production multiple players across the world join the game to further innovate, scale, adopt and make that technology or products ubiquitous across the world. And no, the Semiconductors cannot remain gridlocked into Silicon Valley forever. Smartphones are saturated in USA. Now, it’s time for other regions to manufacture Smartphones and consume for themselves. Similar is the scenario for other semiconductor products. I get my conviction towards this when I see a recent chart on IC usage across the world, published by IC Insights.
This clearly shows Asia-Pac region leading the pack with 58.9% of total IC sales across the world. If you look at the specific categories, the Asia-Pac region has largest share in communications; 24.2% out of a total of 38.3% sales in that category, arguably. The communications segment is followed by the computer segment with 22.4% sales in Asia-Pac region out of a total of 35.6% sale in that category, which is understandable why. Europe leads in the auto segment by a very narrow margin compared to Asia-Pac; that margin is expected to vanish going forward, once Chinese economy improves. The categories which are purely semiconductor driven, i.e. computer and communication, have the combined maximum share at 73.9% of total IC sales. And sales in these categories are heavily dominated by the Asia-Pac region this year.
Although, the chart shows it region wise, in my analysis I am seeing it according to human population in different regions. Out of more than 7 billion people around the world, the Americas have ~4.45%, Europe has slightly more than 10%, Japan has the least ~1.75%, and Asia-Pac has the largest ~55% of world population.
Now connect this with the semiconductor sales; Asia-Pac has the maximum semiconductor sales at 58.9% and Japan has minimum at 7.8%. Interestingly, Americas with 4.45% population contribute much more (22.9%) in semiconductor sales compared to Europe (10.4%) with a population more than 10%. This can be attributed to the effect of America being the initiator and consumption leader in the first place. We can also attribute it to the current financial crisis in Europe. However, the key point I see here is – as things become affordable, they start moving to more populous regions who can afford. Isn’t that the reason, why Xiaomi is entering PC/notebook segment even though that segment is expected to be in decline for next 2 years?
The 30+ years of semiconductors have given enough know-how, affordability, and consumption appetite to many regions around the world, even Africa to start with consumption. Today, Asia-Pac appears self sufficient in manufacturing and specifically dominating in consumption. Within Asia-Pac, China has more than 19% population and India has ~17.5% population. While China already has strong manufacturing, India has to catch up in manufacturing. India’s “Make in India” program is promoting foreign companies to start manufacturing in India, i.e. where the consumption is. There has been good progress – last month Intel opened its Maker Lab in India to provide innovation infrastructure around IoT (Internet of Things) to start-ups; several Smartphone companies including Samsung, Xiaomi, Lava, Karbonn, and others have started manufacturing base in India.
In my view, Asia-Pac region will continue to dominate in semiconductor sales for couple of years until any significant new break-through happens elsewhere in the world.
Pawan Kumar Fangaria
Founder & President at www.fangarias.com