I hope everyone had a chance to attend the GaAs Market Trends & Results webinar I hosted last week. If not and you are interested, please click on the link to view the replay. The RF GaAs supply chain remains very dynamic, with some interesting trends driving the substrate and device portions of the market.

As I’ve mentioned in previous blogs and presentations, the top-level driver for GaAs devices continues to be the increase in data consumption. Some of the latest estimates have mobile data consumption growing at rates approaching 100%, which means IP data consumption will double every year from 2009 – 2016! Even with this impressive growth, these estimates claim mobile data will still be less than 10% of total IP data in 2016. This is important, because while wireless applications continue to drive the GaAs industry, the wired broadband, CATV and transport networks and enterprise applications are also growing and represent opportunities for GaAs devices.

One of the advantages of GaAs is the performance makes the technology useful for a wide variety of commercial and defense applications. So, while the entire industry must continually pay homage to the handset portion, the diversity of applications does help buffer some of the market instabilities. The result for 2011 was another year of revenue growth in the GaAs market. This roughly 6% growth raised GaAs device revenues to about $5.2 billion. Neglecting an essentially flat year in 2009, GaAs device revenues have grown since a decline in 2004, so things have been good in the GaAs supply chain.

There are some storm clouds on the horizon, however. Handset opportunities represent more than 50% of all GaAs device revenue and the broader handset market does not grow explosively. The GaAs market has been helped by the shift toward feature phones and smartphones that have much higher GaAs content and the introduction of more and different frequency bands of operation. Many of the large handset device OEMs have converted from GaAs to SoI for handset switches, turning the handset GaAs opportunity increasingly into a power amplifier opportunity. Since handset switches are very inexpensive, this conversion has not had much effect on GaAs revenue, but the quantity reduction has had a definite impact on the bulk and epitaxial wafer manufacturers. We’ve seen reductions in demand and an upswing in MOCVD production at the expense of MBE devices.

In addition, we’ve all gotten used to larger smartphones that accommodate bigger screens, but you’ve probably noticed a trend toward thinner phones. To meet the demands of more frequencies and form factors, the device OEMs are releasing multi-mode, multi-band amplifiers that allow a single device to replace multiple existing PAs. Given the price and volume pressures from the handset market, it is unlikely that the multi-mode amplifiers will be larger or more expensive than the amplifiers they will replace, so this looms as a potential issue for the substrate and device markets.

However, even with the storm clouds, the GaAs device market has proven to be very resilient. As long as the performance requirements for the various applications keep increasing, GaAs has historically proven to be up to the challenge. Even with smartphone growth slowing (still strong, but slowing), the avalanche of data consumption is driving things like new Wi-Fi standards, higher frequencies for wireless backhaul, “small cells” in wireless infrastructure and higher data rates in transport networks. All these developments should give a boost to the GaAs supply chain.

Since we are almost through 2012, I should add a thought or two about where the market appears to be headed. It looks like we will see some growth in 2012, but at a much lower rate than the historical average of 6%. On a positive note, in a previous blog (At the Halfway Point of 2012: GaAs Device Industry Shows Small Gain ), I introduced the idea of “pressure curves”. While the results are not complete yet for calendar Q3, initial indications show the GaAs market is growing. This, coupled with positive guidance from some of the larger GaAs device OEMs for calendar Q4, may mean we are in for a bit of a rebound, so stay tuned.

-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

The latest Strategy Analytics GaAs and Compound Semiconductor Technologies Service (GaAs) viewpoint, “Compound Semiconductor Industry Review October-December 2011: Microelectronics,” captures product, technology, contract and financial announcements for companies such as RFMD, Skyworks Solutions, Fujitsu, ANADIGICS, Agilent, Hittite Microwave, TriQuint Semiconductor, Avago, NXP Semiconductors, Microsemi, Renesas Electronics, Freescale, Broadcom Cree and Murata Manufacturing. These announcements address a variety of commercial and military applications that use gallium arsenide (GaAs), gallium nitride (GaN), Silicon carbide (SiC), silicon germanium (SiGe) and complementary metal-oxide-semiconductor (CMOS) technologies.

On the financial side, results were generally positive with most of the semiconductor companies reporting sequential quarterly revenue increases. The biggest exceptions were silicon device companies Freescale and Microsemi and GaAs device manufacturer TriQuint. The third calendar quarter is typically the largest revenue quarter for semiconductor companies as their customers ramp production of consumer devices in preparation for the holiday season. Based on this quarter, the three largest GaAs device manufacturers, Skyworks, RFMD and TriQuint all appear to be on different trajectories. Skyworks closed their fiscal year with a 32% increase in revenue. With the timing of their year-end, this is a bit deceiving because it captures the last quarter of 2010, which was a very good year for GaAs. However, this much is clear: Skyworks is consolidating their postion as the largest compound semiconductor device manufacturer. RFMD, after seeing year-over-year revenue drop by about 20% in the first half of 2011 finally saw a revenue increase in the third quarter. After exiting 2010 with strong revenue growth, TriQuint maintained enough growth to surpass RFMD's revenue in th first half of 2011. They have been unable to maintain this growth and closed 2011 just below RFMD.

Even though the compound semiconductor industry growth rate is slowing from previous levels, product and process development is continuing, particularly with Gallium Nitride (GaN). As products using GaN technology continue to gain acceptance in military and commercial applications, development activities at microelectronics companies are accelerating. GaN-based products have demonstrated performance advantages for military systems for some time and they are finally beginning to see acceptance in commercial applications, such as CATV and wireless infrastructure. As these application areas broaden, the industry is responding by increasing their efforts to develop new products, processes and partnerships. Recent announcements indicate growing interest in GaN-on-silicon processing to reduce cost and higher voltage GaN processes to improve power handling performance. Nitronex was particularly active in this area, announcing a multi-stage GaN device with interstage matching, a new 48V GaN-on-silicon process and qualification of the GCS foundry for production of Nitronex's existing GaN processes. In addition, RFMD expanded their line of GaN CATV amplifiers, Mitsubishi Electric anounced two C-band amplifiers for earth station satellite applications and UMS announced their first GaN transistor, targeting a variety of applications.

Eric

For clients to read more:

After a banner year in 2010 and a fast start to 2011, GaAs device revenue growth has slowed and we estimate it closed 2011 at 6%, right around the historical average. The GaAs and Compound Semiconductor Technologies Service (GaAs) Insight, “ 2011 GaAs Device Revenue Flaters after Strong Start" explores the drivers behind the 2011 GaAs device revenue performance. GaAs devices enable a variety of wireline and wireless networks, but no market segment is more essential to the overall GaAs revenue than mobile handsets. As mobile data consumption continues to skyrocket, operators are trying to keep pace by acquiring more spectrum and making mobile devices more sophisticated to use existing spectrum more efficiently. The result is a new generation of feature phones and smartphones that are multi-band and multi-standard to accommodate the new spectrum allocation and increase the geographical footprint of the handset. This, coupled with more sophisticated modulation schemes is increasing the GaAs content for the higher-tier mobile handsets.

Our Wireless Device Strategies Service estimates smartphone sales grew by an average of more than 68% in 2010 and 2011. With this growth, it is understandable that GaAs device revenue surpassed $5 billion for the first time in 2010. Even though the smartphone growth rate was similar in 2011, the overall number mased two different trends throughout the year. The first half of 2011 saw growth well in excess of 80%, while growth in the second half fell to 40%. GaAs revenue growth followed this trend by growing strongly in the first part of 2011 before falling off as the year progressed. The insight looks at our projections for smartphone growth and how we expect this growth to decline over time to eventually approach the growth of the overall handset market.

Even though we are still predicting handset growth and continued use of GaAs in a wide variety of market applications, it appears the market is likely to revert to historical averages as we go forward. This insight summarizes revenue performance of a representative set of GaAs wafer and device manufacturers for 2010 and 2011 and finds some signs of revenue slowdown in the supply chain. It also discusses trends and drivers for the overall GaAs device industry and forecasts potential trouble spots to be monitored through 2012. 

Eric

Clients view related insight from GaAs and Compound Semiconductor Technologies Service here:

http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=7080

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

For Clients to Read More: