Okay, I apologize for the bad pun, but it does seem like the Fiber Optic market is finally trending upward. I attended the OFC/NFOEC Conference in Anaheim in March and although a bit late, I’m glad that April came and I can describe some of the developments. I was impressed with many of the technology, product and market developments on display.

At the top level, this market segment has floundered, directionless for the past several years. After good growth in the middle part of the 2000’s, the overall optical market ran into trouble in 2009 as the global economy faltered. The result was a drop in revenue of about 15%. With the exception of a short-lived spike in 2011, the market has been relatively flat. This behavior is understandable, because upgrading, expanding or initially deploying an optical transport network is a capital-intensive exercise and the uncertain direction of many regional economies only adds to the challenge. The wildcard in this scenario however, is the seemingly insatiable desire to consume data.

We tend to focus on growth in the mobile data consumption that is enabled by the vast array of wireless devices we’ve all grown so dependent on, but that’s not the whole story. As I am fond of pointing out, even with mobile data roughly doubling every year from 2009 to 2016, it will only account for roughly 10% of the total in 2016. The other portion of data consumption comes from Internet, high-speed broadband, CATV and enterprise data applications. Even with the backdrop of a still uncertain economy, it is becoming clear that transport network upgrades are essential to ensure future data increases are feasible.

It appears operators are finally committing the capital resources and this looks likely to set up the overall optical market for steady future growth. At the component level, another interesting trend I observed is the rapid conversion to higher capacity networks. It appears 10Gbps systems are the workhorse of the network, with lower capacity systems all but disappearing. Another thing that seemed clear was that while 40Gbps systems will grow, they won’t represent as big an opportunity as originally thought. There are currently four modulation schemes used for these networks: optical duo binary, DPSK, differential quadrature phase-shift keying (DQPSK) and dual-polarization QPSK or DP-QPSK. While this lack of standardization allows suppliers to differentiate their designs, it does not allow for economies of scale and the cost reduction standardization usually entails. At the same time, the cost of 10Gbps systems has been dropping quickly. These factors seem to be leading operators to consider jumping directly from 10Gbps to 100Gbps networks, skipping 40Gbps in the process. It appears from the Marketing presentations and the products I saw, that 100Gbps system will see the fastest growth, by far! For more information on growth rates, segmentation, quantities and market values for optical transceivers, please look at Capacity Requirements Driving Fiber Optic Market.

The other big topic at the show was silicon photonics. This idea seems to divide the audience into two distinct and passionate camps. One says, “we’ve been hearing this now for years, but where are the production products?” The other camp is more than ready to discuss the benefits of silicon CMOS processes for cost and power reduction. One thing that appears to be different from the past is the dramatic increase in enterprise applications and “big data”. As server farms grow, so does the need for fast, cheap, low power, short-reach connections. This need seems very well suited to the capabilities of silicon photonics. While the technology doesn’t appear to meet the needs of every application, there is certainly a lot of development effort and it will be interesting to see how quickly silicon photonic circuits penetrate short-reach enterprise applications. Stay tuned!

-Eric

With the financial reports in the books, it’s time to close out 2012. The good news is that GaAs device revenue closed 2012 up slightly to reach another record at slightly more than $5.3 billion. The small gain was driven by strong fourth quarter performance from the industry after a sub-par third quarter just about erased the gains for the entire year.

Handsets and smartphones, in particular, remain the driving force behind GaAs device revenue growth. The growth of smartphones with their increasing GaAs device content helped propel the handset segment to more than 50% of the entire market. Not surprisingly, the companies associated with handset devices remain the revenue leaders. Skyworks Solutions again saw their revenues increase faster than the market and they remain the largest GaAs device manufacturer, stretching their lead over TriQuint. On the pure-play foundry side, WIN Semiconductors continues their impressive growth trajectory and they have become the dominant company in this segment.

We expect a good uptick in cellular terminal shipments in 2013, along with smartphones continuing to capture market share. I am expecting this will propel GaAs device revenue growth in 2013 into the 8 -10% range. With some of the predictors I use to track the market, I think there are signs that this growth is taking root. For more details, clients of the GaAs service can access my GaAs Device Industry Closes up in 2012 Insight.

However, even with above average growth looking likely in 2013, all is not rosy for the GaAs device market, long-term. The first threat to growth comes from within. The dizzying number of LTE bands, coupled with a desire for the “world-phone” has given rise to the multi-mode, multi-band (MM-MB) PA. This has some serious repercussions, because this market is so price sensitive that it will not tolerate bigger and more costly parts, so these MM-MB PAs must be smaller and cheaper than the PAs they replace or it won’t make sense to use them. We’ve already seen substantial design and design-in activity, so these devices are beginning to see commercial traction.

The other, serious threat was unveiled at the recently concluded Mobile World Congress (MWC). Qualcomm fired the first shot across the bow with their pre-conference announcement of the “RF360”. The company calls this family of devices a complete, all-encompassing CMOS RF front-end subsystem. This subsystem consists of an antenna tuning IC, an envelope tracking (ET) IC for Qualcomm’s PA and a MM-MB CMOS PA fabricated using a silicon-on-insulator (SoI) substrate. This announcement sent stocks of the GaAs PA manufacturers plummeting to levels from which they are still trying to recover. Then at MWC, a whole host of companies announced their ET development efforts aimed at CMOS-based PAs in LTE handset applications. A detailed summary of these announcements and developments is contained in PA Market in Flux: CMOS PAs and Envelope Tracking Emerge as Major Themes at MWC 2013 from Strategy Analytics’ RFWC service.  

These events and particularly the development on the CMOS front will certainly influence the growth trajectory for GaAs devices in the next several years and merit close attention. If you plan to attend IMS2013 in Seattle, stop by the panel session I will be hosting entitled “The Death of GaAs (?)” on Thursday, June 6^th at 12:00PM. We’ve have some market overviews, short presentations from a number of GaAs and silicon-based device manufacturers and then a lively discussion. If you can’t make the IMS2013 conference, you can also catch up with me at CS MANTECH in New Orleans on May 13 – May 16. I’ll be presenting an overview of the 2012 GaAs market and I’d be happy to chat.

-Eric

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

I just posted theGaAs Five Year Forecast: 2011- 2016on the website and I am happy to report that the GaAs device industry continues to be very resilient. Despite an uncertain direction in the global economy, our research shows the GaAs device market closed 2011 with nearly 6% growth and record revenues of slightly more than $5.2 billion. In fact, our analysis shows the GaAs device market has not declined since 2004 when it stood a shade below $2.4 billion. I’m taking a bit of artistic license with that statement, because we have reported that the market in 2009 “declined” by less than 0.5%, but given the economic meltdown in the US at the time and the nature of the forecasting business: I’ll put that year on the good side of the ledger.

So why is the GaAs market so resilient and less sensitive to economic cycles than other semiconductor technologies (and I’m talking about you silicon)? I think the answer lies in the performance dimension of GaAs technology. We’ve all probably heard the saying “if silicon can do something, it will”. I believe that statement and we’ve certainly seen examples where if silicon-based technologies catch up to the performance of GaAs, the cost advantages make it an easy decision to eliminate GaAs. Keep in mind, among the first applications for GaAs technology were “high-speed” digital logic and where has that market gone? We are seeing SiGe devices in LNA applications and high-frequency transceivers and we are even starting to see CMOS used for handset PAs. The common thread in the application where GaAs is being displaced is a relatively stagnant technology environment. This may be the result of long design cycles, slow upgrade of standards, specifications that remain “good enough” for a long time or a number of other reasons. Where GaAs has proven resilient and risen to the challenge is where the requirements are moving “up and to the right” quickly. As handsets have become more sophisticated with the number of frequency bands increasing quickly, GaAs is still the most capable technology. As Wi-Fi standards evolve to incorporate millimeter wave frequency and multi-gigabit speeds, the displacement of GaAs in this segment does not look quite so certain.

So, why have I gone off on a bit of a tangent? It’s because we are in a period where GaAs will have to show its resiliency once again. We may be looking at a prolonged period of global economic uncertainty that will not help the business models for network capex or consumer spending. For the last couple of years, tremendous growth in smartphone sales have really helped pull the GaAs market along, but saturation is somewhere ahead and growth rates are slowing. In addition, GaAs is still seeing stiff and growing competition from GaN, SiGe, LDMOS and CMOS.

I remain optimistic that the GaAs device market will continue to grow and the report details the effect the trends I’ve mentioned will have on the GaAs bulk and epitaxial substrate market at the very front-end of the GaAs supply chain. The underlying drivers for GaAs growth; data consumption, more GaAs content in handsets, the need for higher capacity wired and wireless networks are still in place. However, I think that the economy is the wildcard. If it doesn’t improve, the growth we see in the next few years may be below historical averages. Now, I’m not a betting man, but despite the apparent gloom, I’m not so sure anyone should bet against the GaAs industry, given the track record of resiliency!

Eric

I recently posted the results and forecasts for the GaAs epitaxial substrate market. The Excel data model is entitled "GaAs Epitaxial Substrates 2011-2016" and the accompanying Forecast and Outlook report is "Markets for Semi-Insulating GaAs Epitaxial Substrates: 2011 - 2016". Our survey results indicate GaAs epitaxial production saw a small (between 2-3%) gain in 2011. This small gain was the result of opposite trends in the two major epitaxial processing techniques, however. As I have been reporting, the demand for pHEMT devices dropped significantly, decreasing by nearly 7% in 2011. The primary reason for this appears to be several large GaAs device manufacturers converting from GaAs to silicon-on-insulator for handset switches. An increase of about 9% in MOCVD processed wafer demand was able to offset the decline in MBE wafer epi and the overall market rose slightly. MOCVD wafers are closely associated with HBT devices used for handset PAs and this underscores the important role these types of devices play in the overall GaAs device market.

Despite the small increase in epitaxial wafer demand, the market revenue grew by almost 20% to nudge jsut past $600 million. The supply chain disruption that spiked pricing in the GaAs bulk substrate market also seemed to have had the same effect on the epitaxial wafers. This price increase is likely a one-time event and epi wafer pricing will return to a more typical price reduction curve starting this year. This, coupled with the slow growth period the entire GaAs market will be in for the next several years will lead to a declining market value through 2016.

The good news is there will be slow growth in device, epi and substrate demand, fueled primarily by handset growth in general and the continued penetration of smartphones. Driven by handset growth, it is not surprising that we believe MOCVD wafer production will increase through the forecast period. What may be surprising is I expect MBE wafer demand to also increase, albeit at a much slower rate than the MOCVD production. I think most of the transition from GaAs to silicon-on-insulator has already taken place and it is unlikely that excess MBE process capacity will remain idle. I think it is far more likely that this MBE and pHEMT capacity will be re-tasked to other high performance markets and this will create the opportunity for some growth.

-Eric

With many of the major GaAs devices manufacturers reporting calendar Q2 results, the GaAs market revenue picture is beginning to sharpen. There is both good news and bad news, so let's start with the good news: it appears the overall GaAs market is managing to eke out growth in the 2% range for the first half of 2012. A small gain, to be sure, but I think the still uncertain global economy has put thoughts of double-digit GaAs device growth to rest.

The bad news is this growth appears to be narrowly-based, at least at the top tier of GaAs device manufacturers. GaAs device lmanufacturer Skyworks and pure-play foundry  WIN Semiconductors both seem poised to strengthen their leads with strong growth. Avago has reported overall revenue growth in the first half of 2012, but their products and technologies are so varied that more scrutiny is needed to tease out the GaAs content from these top-level results. After these three, many of the other top GaAs device manufacturers, like RFMD, TriQuint, ANADIGICS and Hittite have reported year-over-year revenue declines for the first half of 2012. IT's also interesting that the companies that are doing well seem to have found the "formula" because their outlook for the rest of 2012 is relatively optimistic and they expect to continue to see revenue growth. As a positive note, many of he companies that have been mentioned also see brightening market prospoects in the second half of 2012, but many still seem to be forecasting year-over-year revenue declines. I'll be monitoring this to sort out these developments.

The drivers for GaAs, data consumption and increasing smartphone/feature phone penetration and GaAs content are still firmly in place, but there are challenges for GaAs on the horizon. The uncertainty in the economy, especially in Europe is dampening enthusiasm at operators to spend money on network infrastructure and with consumers to buy or upgrade to the latest gadget. There continue to be great strides made by silicon-based technologies into functions previously dominated by GaAs prosucts. The GaAs industry considers the calendar Q3 as it's best as consumer electronics manufacturers ramp up for the holiday season, so the performance during the next quarter will go a long way to clarifying the overall picture for 2012.

I'll leave you with a great visual tool that a colleague of mine uses. She calls the chart linked below a "pressure curve". It represents performance of a data point versus a moving 4-quarter average for a particular metric. In this case, I've plotted a representative pressure curve of a sample of GaAs device manufacutrer revenue since the midway point of 2009. If a point has a value of "1", it is exactly the same as the average of the preceding 4-quarters. Fromn the graph below, it is easy to see the big revenue ramp that closed 2009 and held through most of 2010. We can also see that even with growth in the first half of 2011, the rate was lower and we see the peak in Q3 and subsequent decline. Now, one quarter does not define a trend, but as we come to the close of what has historically been a growth quarter, we can perhaps be a bit optimistic that the GaAs insustry will manage to hold onto and hopefully expand the gains we've seen in the first half.

-Eric

  Pressure Curve.png (60.88 kb)

I’ve reported that the GaAs device market growth slowed considerably in the second half of 2011 (2011 GaAs Device Revenue Falters after Strong Start), dropping the overall revenue increase in the GaAs device market to 6%. This was well below 2010’s 35% growth, but is right in line with the historical growth rate of the market. Despite the market returning to historical averages, some companies did significantly better than the market. The Strategy Analytics GaAs and Compound Semiconductor Technologies Service (GaAs) Insight, “Skyworks Remains the Largest GaAs Device Manufacturer,” explores 2011 GaAs device revenue results and growth trends, as well as revenue performance of leading device manufacturers, like RFMD, Skyworks, TriQuint Semiconductor, Avago Technologies, Renesas Electronics, Hittite and WIN Semiconductors.

The two companies in our top ten GaAs device manufacturers that showed the fastest growth in 2011 also illustrated two of the most important trends in the GaAs device industry in 2011: diversification and outsourcing. Skyworks Solutions, the largest GaAs device manufacturer had a stellar year in 2011, reporting revenue increases of 27%. This growth, well in excess of the market appears to be a testimonial to Skyworks’ efforts at diversifying their smartphone customers, products, technology and market applications. Skyworks is widening their lead over rivals TriQuint, RFMD and Avago Technologies.

The second company showing much stronger revenue growth than the GaAs device market in 2011 was WIN Semiconductors. WIN checked in with revenue nearly 37% higher in 2011! The growth at WIN Semiconductors reflects their commitment to expansion and it illustrates an increasing desire by GaAs device manufacturers to outsource their foundry operations. Companies with foundries, as well as start-ups are looking closely at the “fab-less” or “fab-lite” outsourced business model as a method to increase the range of process technologies that can be offered and provide a capacity buffer without the need for large levels of capital investment. WIN has taken advantage of this trend to easily become the GaAs device industry’s largest pure-play GaAs foundry.

Eric

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