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 have just released our latest GaAs bulk substrate market updates. The data model, “SI GaAs Substrates Markets: 2011-2016” and the Forecast and Outlook,“Semi-insulating GaAs Substrate Markets: 2011 – 2016” show that slow growth in the GaAs device market in 2011, coupled with a shift away from GaAs technology for handset switches dropped demand for semi-insulating GaAs bulk substrates by 4%. The other major driver for the GaAs bulk substrate market in 2011 was the devastating earthquake and tsunami that hit Japan. With so much of the supply chain located in this region, the accompanying disruption seems to have raised substrate prices and the overall market value as a result.

This certainly is not how you hope to see revenue growth in a market and this set of circumstances will be short-lived as the Japanese people continue working diligently to restore the country back to “normal”. The supply chain disruptions seem to have largely settled out and I expect the market to revert to slow growth and a more traditional price erosion curve beginning this year. I am optimistic the GaAs bulk substrate market returns to growth in 2012 because GaAs device manufacturers are seeing some growth in revenue and demand and most of the conversion of handset switches to SoI has already taken place.

The survey results indicate demand for GaAs bulk substrates reached slightly more than 32100 ksi in 2011. Even though the demand dropped by 4%, the market value increased by 12% to reach nearly $230 million. This revenue increase appears to be a singular event tied to the earthquake and tsunami aftermath. My forecast indicates demand and revenue will return to slow growth with demand reaching nearly 39000 ksi and revenue growing to slightly more than $240 million by 2016.

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:

 

Japan is a leading player in the GaAs RF/microelectronics industry, accounting for 50 percent of bulk substrate supply, 18-20 percent of global SI GaAs epitaxial substrate production and up to one-fifth of the global GaAs device market.

The impact of the March 11 earthquake and ensuing tsunami, as well as the on-going issues with the nuclear reactors at Fukushima, are affecting the equipment and materials suppliers, consumer electronics companies, automotive, test and measurement companies in Japan.

We believe the primary factors that will impact GaAs device supply out of Japan relate to more generic issues which have an impact on the whole electronics industry. These include disruption to utilities, logistics and concerns around the availability of materials used in chip packaging and assembly.

Strategy Analytics assessment of the situation indicates that there is no danger of immediate disruption to the supply of gallium and arsenide raw materials. The supply of SI (semi-insulating) bulk substrates will be sustained and GaAs device manufacturing facilities were also largely unaffected.

There is the possibility, however, that any significant ramp in demand for GaAs epitaxial substrates over the next three to six weeks may lead to end-users being placed on allocation. Strategy Analytics analysis shows that the Japanese epitaxial substrate suppliers were running at full production rates with little to no excess inventory in the supply chain.

The Strategy Analytics GaAs and Compound Semiconductor Technologies (GaAs) service report, "Japanese Quake Impact on the GaAs Industry," provides a preliminary assessment of the impact of the tragedy on the global GaAs industry in Japan and throughout the world.

Strategy Analytics was honoured to give the keynote speech at the plenary session of Compound Semiconductor Week on June 2, 2010 in Takamatsu, Japan.   The presentation discussed the current status and future outlook for GaAs, GaN and InP technologies covering both RF/microelectronics and optoelectronics applications.  GaAs-based devices will continue to enable next generation wireless technologies, while InP will be at the forefront of future telecom network rollouts that will enable demand for high bandwidth applications supporting traffic demands from emerging 3G and 4G networks. While the market for GaN RF and power devices is still be at an early stage, GaN-based LED devices will be pivotal to the development of future solid-state lighting markets and are currently driving flat panel TV backlighting trends. There is also an emerging opportunity for compound semiconductors in the terrestrial photovoltaic market.   Strategy Analytics forecasts that the collective market for GaAs, InP and GaN compound semiconductor devices will grow at a CAGR of 16% through 2014 to be worth over $32 billion.  The presentation, Compound Semiconductor Markets: Current Status and Future Prospects Through 2014 is now available on the GaAs service.