I didn’t want to let this news item slip away without comment because it has some serious implications for the GaAs epitaxial wafer market. On January 10 2013, IQE announced they agreed to acquire the compound semiconductor epiwafer manufacturing business of Kopin Corporation for total consideration of $75 million in cash. This follows up on the announcement earlier in the 2012 that IQE had signed what they describe as a “multi-faceted agreement” to acquire the entire in-house MBE epiwafer manufacturing unit of RFMD. In exchange for the transfer of these assets, there will be no upfront cash outlay. Instead, the two companies have agreed to a seven-year wafer supply agreement, with a minimum purchase commitment of $55 million over the first two years. This agreement will result in IQE being the exclusive supplier of all of RFMD’s MBE wafer requirements and a majority of its MOCVD wafer requirements under a discounted pricing arrangement.

In our last Forecast and Outlook Report: Markets for Semi-Insulating GaAs Epitaxial Substrates: 2011 - 2016, I concluded that IQE was the dominant merchant vendor of MBE epitaxial substrates with almost 85% of the market and the largest overall merchant supplier by virtue of their ability to supply both MBE and MOCVD substrates. My analysis ranked RFMD as the fourth largest and Kopin as the third largest overall suppliers of epitaxial substrates. With the acquisitions, IQE is poised to be the dominant epitaxial wafer manufacturer with more than 50% of the entire market. Their dominance in the MBE market is enhanced by RFMD’s capability and the Kopin acquisition roughly triples their MOCVD capability. This allows IQE to vault from a distant third in this segment past VPEC into first place. The enhanced MOCVD capability enables them to get a firm foothold in the growing handset PA market through the wafer supply agreement with RFMD and the customer relationship Kopin had with Skyworks.

It appears clear that IQE will have a stranglehold on the epiwafer segment. Based on 2011 results, they will be almost three times as large as VPEC, their closest competitor. The deals make perfect sense for IQE; they extend their dominance in the MBE segment and gain a much-needed boost in the MOCVD segment, along with relationships to RFMD and Skyworks. From the RFMD perspective, most if not all of their handset switches have transitioned to SoI as the technology of choice, making it difficult to keep the 16 operational MBE tools they are transferring to IQE busy. While Kopin has been a very strong competitor in the III-V epitaxial wafer market segment, they have obviously chosen to cast their lot with the display technology they have been developing and with that focus, the epiwafer portion of their business no longer fit the company’s direction.

These announcements, coupled with an earlier announcement of an exclusive supply contract and strategic investment in CPV module manufacturer, Solar Junction Corporation was a very loud statement of IQE’s intention to consolidate the epiwafer space and diversify end markets. The challenge in acquisitions is always the successful integration of the new parts, but barring any missteps in that area, IQE looks poised to be the dominant epitaxial wafer supplier. It will be interesting to see how these acquisitions change the epitaxial wafer landscape, so stay tuned for more insights and forecasts in the upcoming months.

-Eric

While I try to get current with product and financial announcements, I thought I’d spend a moment discussing some of the news from the July to September quarter. The two recently published reports: “Compound Semiconductor Industry Review July - September 2012: Microelectronics” and “Compound Semiconductor Industry Review July - September 2012: Optoelectronics, Materials & Equipment” highlight financial, product, contract and employment announcements from the compound semiconductor industry. The executive summaries of both reports focuses on the financial aspects of the industry and both segments are facing some challenges. The microelectronics segment appears to be trending upward, but it is still challenged to reach the revenue levels the industry saw in 2011. With the close of 2012, I see no reason to change my stance that when the revenue is counted, we will see a slight growth, but growth nonetheless.

On the optical side of the house, the picture is much fuzzier. The LED industry is still reeling from subsidies that have slowed and is plagued by a dramatic decrease in price, even in the face of slow unit growth. This is not only affecting the LED industry, but the material and equipment portion. Solar power continues to see a lot of political momentum as the best thing for the environment, but companies are still struggling to make money. The report has almost as many companies reorganizing and shutting down operations as those that are increasing capability, so the best direction for the industry is still not clear.

While the financial aspect is very important, it has masked some very interesting product development trends in both segments of the industry. It should come as no surprise that GaAs is under fire from other compound semiconductor technologies like GaN and SiGe, but also increasingly from silicon CMOS-based processes. The breadth of companies developing these applications is growing. On the microelectronics side, the report captures an announcement from Amalfi Semiconductor that they shipped their 100 millionth CMOS PA. Javelin also announced a CMOS PA design win in a Samsung 3G phone. The success of the CMOS PA manufacturers has been pretty evident. In the past year or so, Axiom Microdevices (Skyworks) and now Amalfi (RFMD) have been acquired by larger “GaAs manufacturers” as these companies make a relatively small defensive bet on CMOS technology as a hedge against their stakes in the nearly $3 billion handset PA market.

However, the CMOS target is not just handset PAs. The reports also capture RFaxis announcing seven new products aimed at high-volume markets as part of their “turn off the GaAs” campaign. Fujitsu announced a CMOS-based power detector and Silicon Labs and Avago announced a CMOS optocoupler. Even companies closely associated with GaAs are expanding their silicon offerings with Skyworks announcing a driver for LEDs and Hittite expanding their silicon-based ADC and clock generator offering.

So, the battle is on. The reality is that there is no perfect technology and the market selects the best solution. I’ve been saying that while silicon has a number of advantages, don’t count GaAs out just yet, especially where performance targets are steadily increasing. In a shameless plug, if you plan to attend IMS2013 in Seattle, stop by for a panel session entitled “The Death of GaAs (?)” that I will be chairing. I’m sure we will have a lively session discussing many of the same issues that I’ve raised here!

Eric

In the course of the last month or so, I have had the opportunity to attend CS MANTECH, CTIA Wireless and The Cable Show. Even though these conferences address different industries and different points on the supply chain, it was very interesting to see similar threads running through all three. The conclusion is inescapable: data consumption is the engine that is driving consumer and enterprise devices and networks. These networks, whether wired or wireless, are also becoming increasingly intertwined.

The onslaught of data consumption is not new, Strategy Analytics has been following the dramatic increase for years and most top-level market presentations include some reference to this trend. I think the most succinct explanation of this trend came during a panel session at The Cable Show. Actor, director and writer Edward Burns characterized the current landscape (and I am paraphrasing here) as one of access not ownership. This was fascinating to me because Mr. Burns is not in the wireless or wired broadband industry, but he realizes the importance of the network and how consumers access his craft. It also goes a long way toward explaining the demise of “big-box” electronics and audio stores and the growth of audio and video streaming services. It also bodes well for the continued growth of the broadband industry since the high-speed broadband networks enable access.

On the convergence front, one of the big announcements at The Cable Show was that US MSOs Comcast, Time Warner Cable, Cablevision Systems, Bright House Networks and Cox Communications will allow their broadband subscribers to connect to the Wi-Fi networks of any of the companies in this agreement. This combined network will total more than 50,000 hot spots and is again interesting from several fronts. First, it shows the commitment cable companies have made toward having a wireless component to their networks. This is being done with an eye toward maintaining the “broadband experience” for customers who are nomadic outside of their homes. It also shows the concern about wireless broadband capturing share of the total broadband market.

There were presentations from CEOs of major wireless, cable and device companies that were upbeat about the trends in their respective industries. Universally, the drivers for this optimism were increasing data consumption and the advances in the networks and devices to support this consumption. Most, however, also sounded a cautionary note about spectrum availability for the wireless industry and the most efficient way to increase spectrum for the wired industry. Addressing these issues will provide both opportunities and challenges for device, equipment and network manufacturers and will likely determine the trajectory of future growth.

It has been a very lively past few weeks. It is clear the growth engine in the compound semiconductor industry is still firing on all cylinders and convergence is occurring in all segments of the electronics industry. Please keep an eye out for more detailed summaries of the individual conferences in the coming weeks.

Eric

The Strategy Analytics GaAs and Compound Semiconductor Technologies Service (GaAs) viewpoint, “Compound Semiconductor Industry Review October-December 2011: Optoelectronics, Materials and Equipment,” captures product, technology, contract and financial announcements from major material, device and equipment suppliers in the optoelectronics market supply chain, such as AIXTRON, IQE, Kopin, Oclaro, GigOptix, Cree, JDSU, Avago Technologies, Finisar and Osram. These announcements are categorized by material and equipment, laser, LED and compound photovoltaic activity.

Despite recent, highly publicized problems at Evergreen Solar and Solyndra, solar energy continues to play an essential role in political strategy as government and the private sector seeks viable sources for renewable energy. It is easy to get a negative outlook about an entire segment when a couple of the high profile participants run into difficulties. The reality, however, is that solar energy has become a widely deployed form of alternative energy. The product development announcements we captured in Q4 provide a counterpoint to the bankruptcy proceedings at Evergreen Solar and Solyndra and show growth and activity in the compound photovoltaic technologies which underpin the solar market.

The growth starts at the begiining of the supply chain with commitments of $2 billion to increase polysilicon production by 23,000 metric tons per year. Companies like Spire, Avancis, Soitec and First Solar are expanding their photovoltaic module manufacturing plans and TSMC, through its TSMC Solar subsidiary has entered the module manufacturing arena. These announcements, coupled with more companies reporting efficiency records for solar cells points to a vibrant industry with good opportunities for compund semiconductor materials.

The outlook in the LED sector is not quite so upbeat. AIXTRON, one of the leading semiconductor equipment manufacturers reported a steep drop in revenue and orders in 2011. They blame high levels of government funding in China and financing pressures on the Asian LED manufacturers for masking a significant organic slow down in LED demand in China. It appears production in 2012 will continue to grow, but perhaps not enough to offset price erosion. Despite, this, there is still a signficant amount of development activity at companies like Cree, Bridgelux, Epistar and Luminus. These developments aim at increasing efficiency, output and affordability for applications ranging from low power consumer devices to high intensity specialty lighting and streetlights.

Eric

 For clients to read more:

The latest GaAs Optoelectrponics Industry Viewpoint, entitled "Compound Semiconductor Industry Review July-September 2011: Optoelectronics,” summarizes financial, product, contract and employment announcements from major optoelectronic material, device and equipment suppliers. These announcements are categorized as material and equipment, laser, LED and compound photovoltaic activity. During this quarter, the financial results for companies in the overall optolectronics segment were generally positive, with the majority of companies reporting quarterly revenue increases. There was a potential storm cloud on the horizon as leading equipment manufacturer Aixtron lowered revenue expectations for the year (2011) by 25%. When a leading equipment manufacturer in the very front end of the supply chain revises revenue and backlog expectations substantially downward, the entire segment takes notice. While mid- to long-term prospects for the LED market remain positive, continuing economic turmoil and rapidly dropping prices have manufacturers in the LED supply chain on edge.

Development activities across the entire sector continue to be strong. In the LED segment, blue LEDs appear to be in high demand. AIXTRON announced orders (despite the revenue warning) from several companies for equipment to be used in the manufacture of blue LEDs and Avago, Osram, Cree, Bridgelux and EpiLEDs all made product announcements of new blue LEDs. In the optical transport market, component developments targeted 10Gbps and above, while system developments also targeted data rates of 32Gbps and above. In this area,  Neophotonics announced 10Gbps transceiver modules for GPON applications and a 40Gbps transceiver for 10km single fiber applications. GigOptix, Finisar, Oclaro and Mitsubishi Electric all demonstrated 40Gbps modules, with Oclaro announcing a 100Gbps receiver.

The photovoltaic segment also saw a lot of development activity with the US government continuing to jump-start alternative energy initiatives. The US DoE announced $4.5 billion of conditional loan guarantees to support three alternating-current CdTe thin-film PV generation facilities that will total more than 1.3GW of capability. They also announced round 8 of funding opportunities for solid-state lighting technology and a $197 million loan guarantee for facilities that will produce about 400MW of flexible CIGS modules each year. The approach seems to be working, as several activities previously linked to DoE loans made announcements in this quarter. These plants target more than 560MW of solar energy output.

Eric

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