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Unformatted text preview: U.S. Semiconductors Primer AMERICAS SEMICONDUCTORS Chip-by-Chip: Semiconductor ABCs Sector Primer In this detailed industry report, we provide a framework for longerterm analysis by examining the market size, competitive landscape, and growth drivers for the semiconductor industry. Separately, we have published an outlook piece, titled “Comfortably Numb,” with themes, catalysts, and best ideas for 2014. This report offers historical analysis, a discussion of key themes, and an outlook for each of the major sub-segments including Microprocessors, Wireless, Logic, Memory, Analog, and Graphics. We also detail the semiconductor manufacturing processes, Moore’s Law, and new production technologies such as FinFET, double and quadruple patterning, and 450mm. EQUITY RESEARCH December 11, 2013 Sector view Remains Neutral Research analysts Americas Semiconductors Romit Shah - NSI [email protected] +1 212 298 4326 Sidney Ho, CFA, CPA - NSI [email protected] +1 212 298 4329 Sanjay Chaurasia - NSI [email protected] +1 212 298 4305 We discuss in the Microprocessor section: new product roadmaps, Intel’s leadership position in servers, and ARM’s 64-bit architecture. We provide a PC model forecast with analysis of the weakening correlation between unit growth and GDP. We also examine integrated CPU graphics, PC gaming, and applications that will support GPU in cloud (GRID). In addition, we look at the evolution of cellular standards, economics of baseband processors, and Qualcomm’s leadership position in LTE. Emerging market smartphone adoption along the S-curve, increasing complexity of RF, and the number 2 player in LTE are key themes we discuss in the Wireless section. We also examine the communications infrastructure market with a focus on PLD content, carrier capex trends, and the impact from densification technologies such as Small Cells. Furthermore, we share our perspective on key technology transitions in DRAM and NAND, as well as a discussion on capacity, pricing, and competition from Samsung. See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts. Nomura | U.S. Semiconductors Primer December 11, 2013 Relative ranking for companies in our coverage Here is our view on relative rankings for companies within our coverage. Fig. 1: Relative ranking for our coverage Rating Company Buy Qualcomm China LTE Drives $6.00 EPS Power Xilinx Highest Growth in 2014 Micron Technology Multiple Expansion Drives Next Leg Avago Technologies TD-LTE and Cisco Drive Outsized Growth Broadcom Value is Deep Nvidia Market not Assigning Value to Tegra Cypress Semiconductor Passing the Trough Maxim Integrated Recent Win at Apple Is Interesting Atmel Show Me the Leverage Marvell Technology Skeptical of Wireless Traction Intel Uncertainty and Safety Advanced Micro Devices PCs Under Significant Pressure Analog Devices Weak Track Record of Growth Linear Technology Great Company, Bad Price Altera 28nm Share Loss not Discounted Texas Instruments Unjustifiable PE SanDisk Cautious on NAND; Samsung Competition Cavium Great Expectations; Trades at 30x Neutral Reduce Comments Source: Nomura research 2 Nomura | U.S. Semiconductors Primer December 11, 2013 Contents 7 78 Industry Overview Research analysts 9 Ranking Semiconductor Companies (by Revenue) Americas Semiconductors 10 Semiconductor Industry by Device Type Romit Shah - NSI [email protected] +1 212 298 4326 12 Semiconductor Industry by End Market 13 Computing (Data Processing) 18 Wireless Communications 23 Communications Infrastructure and Networking 25 Consumer Electronics 27 Automotive 29 Industrial 30 Military and Aerospace 31 Best Growth Opportunities in Semiconductors 32 Semiconductor Represents 20% of Electronics Systems Value 33 The Semiconductor Industry Is Cyclical 35 Key Metrics to Watch 39 Other Metrics to Watch 41 Semiconductor Industry Is Capital Intensive 44 Capital Intensity Is Increasing 48 Intel’s Process Lead May Result in Cost Advantage versus TSMC in the Next Few Years 49 Intel Will Broaden Foundry Customer Base 50 Valuation Multiples Shrink as Market Matures 51 PHLX Semiconductor Sector (SOX) 53 Semiconductor Key Milestones 54 Semiconductor Manufacturing 58 Production Processes and SPE markets 61 Key Trends and Developments in SPE Sidney Ho, CFA, CPA - NSI [email protected] +1 212 298 4329 Sanjay Chaurasia - NSI [email protected] +1 212 298 4305 Microprocessors (MPUs) 78 Overview 3 Nomura | U.S. Semiconductors Primer 122 132 78 Brief History of Microprocessors 80 Types of Processors 82 Microprocessor Market Size 83 x86 Architecture – De Facto Standard in PCs 84 Intel’s Tick-Tock Model 85 High-K Metal Gate (HKMG) – Becomes an Important Breakthrough 87 3D or Tri-gate Transistors: 10 Years in the Making 90 Capital Intensity Needed to Follow Moore’s Law Is Increasing 92 End Markets 114 ASPs 117 Client Roadmap December 11, 2013 Graphics Processing Unit (GPU) 122 GPU processing pipeline 123 Types of GPUs 123 Integrated graphics – Will likely keep gaining share from low-end discrete GPU 125 Discrete graphics – Will continue to dominate the high-end and gaming markets 127 Discrete Graphics Overview and Landscape 131 Market share trends – Nvidia’s share reaching record high Wireless 132 Market Size 133 Key Components in the Wireless Industry 148 Handsets remain the key driver for wireless semi growth 150 Evolution of cellular standards 154 Drivers for LTE 155 Qualcomm sustaining leadership in LTE 157 In the long run, we see Intel and MediaTek vying for the No. 2 spot in LTE 160 MediaTek, over time, could become a meaningful LTE supplier in China 162 LTE adoption could drive a multiyear growth in RF components 165 RF360 – A disruptive technology? 166 We think RF360 is largely a power amplifier play, but will take time to gain traction 4 Nomura | U.S. Semiconductors Primer 175 194 228 167 Apple’s 64-bit support will likely increase competition among ARM SoC vendors 169 3G ASPs will prove more resilient than investors fear December 11, 2013 Programmable Logic Devices (PLDs) 175 PLD market 176 Problems with fixed logic 176 PLDs offer fast time-to-market 177 Types of PLDs 178 PLDs have potential to displace ASIC and ASSP 179 PLDs benefit from an expanding addressable market 182 However, PLDs have not outgrown the semiconductor market 184 The biggest driver for PLDs is carrier equipment spending 185 4G/LTE spending should improve, but relative to 3G may be more drawn out 187 Small Cells will play a bigger role in 4G networks; PLD content in small cells is very low 189 Competitive landscape Analog 194 What Is Analog IC? 195 Characteristics of the Analog Market 198 Analog Market Size 200 Analog market segments 215 Analog Follows GDP Growth 219 The Analog Market Works Like a Pendulum 221 Investing For The Future 222 Focus on Shareholder Returns 224 Valuation Is Key to Investing in Analog 226 Outlook for 2014E Memory 231 DRAM Market 233 Consolidation Should Bring More Stability to the Market 234 Technology Migration Drives Price Decline 5 Nomura | U.S. Semiconductors Primer 236 Capital Spending Is Key to DRAM Cycles 238 The Importance of PC Is Diminishing 240 Mobile DRAM to Exceed PC DRAM in 2014 245 NAND Market 246 Multiple Applications Drive Demand Growth 248 Moving Faster than Moore’s Law 250 More Bits per Cell 252 NAND Capex Set to Rise 253 Bargaining Power of the NAND Industry 254 SSD is the Next Big Growth Driver 257 Scaling Challenges Ahead: 3D NAND and Other Options 263 Company Models 318 Appendix A-1 December 11, 2013 6 Nomura | U.S. Semiconductors Primer December 11, 2013 Industry Overview Semiconductors serve as the foundational component for modern-day electronic equipment. While the majority of semiconductors are used in personal computing and communications devices, they can also be found in a wide variety of end market applications such as consumer, industrial, medical, military, and aerospace. In 2013, we estimate the semiconductor industry will surpass $300bn in sales for the first time. According to Worldwide Semiconductor Trade Statistics (WSTS) published by the Semiconductor Industry Association (SIA), semiconductor industry revenue reached the $1bn milestone in 1964, followed by $10bn in 1979 and $50bn in 1990. 1990 to 2000: Revenue quadrupled Between 1990 and 2000, the industry grew fourfold to $204bn, representing a CAGR of 15%. There were two notable peaks during this period: the 1995 peak of $144bn (up 42% YoY) was driven by the growth in personal computing, and the peak in 2000 of $204bn (up 37% YoY) was driven by the emergence of the Internet. 2000 to 2010: Revenue decelerated following the Internet bubble Between 2000 and 2010, the industry growth rate declined to only 4% CAGR, largely because of a significant correction of 32% decline in 2001. If we exclude 2000, the growth between 2001 and 2010 was 9% CAGR. Also notable is that industry revenue declined 9% YoY in 2009 during the financial crisis, only to see a strong rebound of 32% YoY in the following year. 2010 to 2013: No growth, excluding memory Semiconductor industry growth continues to decelerate this decade. Between 2010 and 2013, we estimate industry growth slows to only 1% CAGR. As the industry matures, semiconductor revenue growth is more closely tied to global GDP growth. Macro uncertainties particularly in Europe and the U.S. had been a headwind to semiconductor growth in the past two years. Furthermore, in 2012, the emergence of smartphones and tablets drove a decline in worldwide PC sales for the first time in 10 years, and the trend continues in 2013. And although the industry showed 4% year-over-year growth through the first three quarters of 2013, the majority of the growth came from the memory industry. Excluding memory, semiconductor revenue would have been flat year over year. Fig. 2: Semiconductor revenue YoY growth 400 Industry Revenue (in $bn) 350 1990-2000 2000-2010 2010-13 15% CAGR 4% CAGR 1% CAGR 300 250 200 150 100 50 0 Source: SIA, Nomura estimates 7 Nomura | U.S. Semiconductors Primer December 11, 2013 Fig. 3: Semiconductor industry revenue milestone 1947 Invention of transistors 1949 Semiconductor industry surpassed $100mn in sales. 1964 Semiconductor industry surpassed $1bn in sales. 1979 Semiconductor industry surpassed $10bn in sales. 1994 Semiconductor industry surpassed $100bn in sales 2000 Semiconductor industry surpassed $200bn in sales. 2011 Semiconductor industry sales reached a record high of $300bn. Source: Global Semiconductor Alliance (GSA), SIA, Nomura research Units track revenue Similar to industry revenue, the growth of semiconductor unit shipments also decelerated in the past two decades, declining from 11% CAGR in the 1990s to 6% CAGR in the 2000s and only 2% CAGR so far in the 2010s. Discrete components account for nearly 70% of the industry shipments, while the more complicated integrated circuits, or ICs, account for 30%. Stable ASP Average selling prices (ASP) of semiconductor components have been relatively steady, declining at an average of 1-2% per year since 2000. In 2012, discrete components had an ASP of about $0.10, while integrated circuits had an ASP of about $1.30. Even within integrated circuits, there is also a wide range of ASPs. For example, a microprocessor had an ASP of about $90, while an analog chip had an ASP of only $0.40. Fig. 4: Semiconductor unit shipments 900 800 Fig. 5: Semiconductor average selling price (ASP) 1990-2000 2000-2010 2010-13 11% CAGR 6% CAGR 2% CAGR 0.80 0.70 600 500 400 300 200 2010-13 -1% CAGR 0.50 0.40 0.30 0.20 100 0.10 0 0.00 Source: SIA, Nomura estimates 2000-2010 -2% CAGR 0.60 Average Selling Price ($) Industry Units (in bn) 700 1990-2000 +4% CAGR Source: SIA, Nomura estimates 8 Nomura | U.S. Semiconductors Primer December 11, 2013 Ranking Semiconductor Companies (by Revenue) In 2012, Intel had the highest revenue in the semiconductor industry at $49bn, accounting for 16% of total industry revenue. Samsung was second at $29bn and 10% share. Qualcomm (4% share), Texas Instruments (4%) and Toshiba (4%) round out the top 5 companies. The top 10 companies accounted for about 50% of the industry revenue. Fig. 6: Semiconductor revenue and market share, 2012 Rank Company Revenue ($mn) Share (%) 1 Intel 49,089 16% 2 Samsung Electronics 28,622 10% 3 Qualcomm 13,177 4% 4 Texas Instruments 11,111 4% 5 Toshiba 10,610 4% 6 Renesas Electronics 9,152 3% 7 SK Hynix 8,965 3% 8 STMicroelectronics 8,415 3% 9 Broadcom 7,846 3% 10 Micron Technology 6,917 2% 11 AMD 5,294 2% 12 Infineon Technologies 4,797 2% 13 NXP 4,114 1% 14 Sony 3,967 1% 15 SanDisk 3,945 1% 16 Freescale Semiconductor 3,738 1% 17 Elpida Memory 3,328 1% 18 MediaTek 3,326 1% 19 Nvidia 3,244 1% 20 Marvell Technology Group 3,157 1% 21 ON Semiconductor 2,895 1% 22 Rohm 2,889 1% 23 Analog Devices 2,691 1% 24 Panasonic 2,680 1% 25 Sharp 2,537 1% Others 93,406 31% Total Market 299,912 100% Source: Company data, Nomura estimates 9 Nomura | U.S. Semiconductors Primer December 11, 2013 Semiconductor Industry by Device Type The semiconductor industry is generally divided into seven categories. In 2012, logic accounted 28% of total sales, followed by microcomponents (21%), memory (19%), analog (13%), optoelectronics (9%), discrete (7%), and sensors (3%). The first four device types – logic, microcomponents, memory, and analog – are generally considered integrated circuits (ICs). In this report, we will focus on the four integrated circuits segments. • Logic (28% of sales): there are two sub-segments within logic, which are standard logic (6%) and application specific logic (22%). Standard logic includes general purpose logic, programmable logic devices (PLD), and display drivers. Within application specific logic, the largest segments are communications and computing. In the segment, we will focus on the PLD segment. • Microcomponents (21% of sales): within this segment, the main sub-segments are microprocessors (14%), microcontrollers (5%), and digital signal processors (1%). The primary end market for microprocessors is computing (personal computers and servers). The key end markets for microcontrollers are automotive, consumers, and industrial. DSPs are commonly used in communications equipment. • Memory (19% of sales): this segment is driven by two sub-segments: DRAM (9%) and NAND flash memory (9%), while other memory types such as NOR and SRAM together accounted for about 1% of total 2012 semi sales. The composition of this segment changed significantly in the past decade. In 2000, DRAM was the dominant memory type, followed by NOR flash, and SRAM. • Analog (13% of sales): the analog segment can be by divided standard analog and application specific analog. As the names suggest, application specific analog is designed for one specific end market, while standard analog is a device designed for more than one application and often used by more than one customer. Fig. 7: Semiconductor industry by device type, 2012 Optoelectronics 9% Sensors 3% Analog 13% Discretes 7% Logic 28% Memory 19% Microcomponents 21% Source: SIA, Nomura research 10 Nomura | U.S. Semiconductors Primer December 11, 2013 Over the past 5 years, the overall semiconductor market grew at a CAGR of 3%, while the growth rates of IC segments ranged from 0% to 4% CAGR. That said, there could be substantial difference within each major segment. For example, within the memory segment, DRAM declined at a 4% CAGR over the past five years, while NAND flash grew at a 12% CAGR over the same period. Fig. 8: Semiconductor market by device type, 2008-2013E (in $bn) 2008 2009 2010 2011 2012 2013E 5-yr CAGR Analog 36 32 42 42 39 41 2% Logic 74 65 77 79 82 85 4% Microcomponents 53 48 61 65 60 62 1% Memory 46 45 70 61 57 58 0% Discretes 17 14 20 21 19 20 3% Optoelectronics 18 17 22 23 26 28 10% Sensors Total Semiconductor 5 5 7 8 8 9 9% 249 226 298 300 292 303 3% Source: Company data, Nomura estimates The following table shows the major semiconductor vendors in each major segment. Fig. 9: Major semiconductor vendors Segment Major Semiconductor Vendors Analog Standard Analog TI, Analog Devices, Maxim, Linear, Intersil, Semtech, Micrel, ON Semi, Fairchild ASSP Analog Consumer ASSP NXP, STMicroelectronics, Broadcom PC ASSP Intersil, Semtech, International Rectifier Comm ASSP TI, STMicroelectronics, Freescale, Infineon, Broadcom, PMC, NXP Logic PLD Xilinx, Altera, Lattice, Microsemi Special Purpose Logic Intel, Samsung, Qualcomm, Braodcom, Marvell, AMD, Nvidia, Infineon Other logic Samsung, IBM, NEC, Fujitsu, Toshiba, Renasas, Magnachip Microcomponents Microprocessors Intel, AMD, Freescale, Oracle, IBM, Renasas Digital Signal Processors TI, Analog Devices, Freescale, Toshiba, NXP Microcontrollers Renasas, Freescale, Infineon, Microchip, STMicro, TI, Atmel, NXP, Fujitsu Memory DRAM Samsung, SK Hynix, Micron, Elpida, Nanya NAND Flash Samsung, Hynix, Toshiba/SanDisk, Micron/Intel NOR Flash Micron, Spansion, Macronix, Samsung, Winbond Other memory Cypress, STMicroelectronics, Renasas, Atmel, Microchip Discretes Infineon, Toshiba, ON Semi, Mitsubishi, Renasas, NXP, Vishay Optoelectronics Sony, Samsung, Sharp, Nichia, Omnivision, Aptina Sensors Robert Bosch, STMicroelectronics, Infineon, Asahi Kasei, Denso Source: Gartner, Nomura research 11 Nomura | U.S. Semiconductors Primer December 11, 2013 Semiconductor Industry by End Market The semiconductor market serves a number of end markets. In 2012, data processing (or computing) was the largest end market, consuming 39% of the semiconductor market revenue, followed by communications at 29%, consumer electronics at 14%, industrial at 9%, automotive at 8%, and military and aerospace at 1%. Over the past 10 years, the end market split has been relatively stable. The notable exception is communications, which grew from 23% of total sales in 2002 to 29% in 2012. Specifically, wireless communications has been the fastest growing segment, accounting for 22% of total sales and up from 14% in 2002. The growth was driven by the growth in mobile handsets, and more recently the popularity of smartphones. In contrast, the computer electronics segment (including PC) within the data processing market saw two consecutive years of decline as PC growth rate stalled. This is partially offset by the increased adoption of tablets, as well as servers that power traditional enterprises and internet data centers. The consumer segment also saw a steady decline in the past three years, as it appears that consumer spending has switched from PCs and home electronics to smartphones and tablets. We expect these trends to continue over the next 5 years. In the following section, we provide more details of the dynamics of each end market. Fig. 10: Semiconductor revenue by end market, 2012 Military and Industrial Aerospace 9% 1% Automotive 8% Data Processing 39% Consumer 14% Communications 29% Source: Gartner, Nomura research 12 Nomura | U.S. Semiconductors Primer December 11, 2013 Computing (Data Processing) Computing is the largest end market in semiconductors. Gartner estimates that computing semiconductors will reach $123bn in 2013, accounting for about 39% of total semiconductor revenue. Gartner further estimates that this segment will grow at a 5% CAGR to $151bn in 2017. The key end products in this segment are desktops, notebooks, tablets and servers. Gartner estimates that these four product types account for roughly 65% of the segment revenue. Semiconductor companies that have the highest exposure to the computing market include processor suppliers (Intel, AMD and Nvidia), hard disk drive system-on-a-chip suppliers (Marvell and LSI) and memory suppliers (Samsung, Hynix and Micron). Fig. 11: Computing (data processing) semi revenue, 2008-2014E 160 42% Market Size ($bn) 140 41% 120 40% 100 80 39% 60 38% 40 37% 20 0 36% 2008 2009 Computing Revenue 2010 2011 2012 2013E 2014E % of Total Semi Source: Gartner, Nomura research Desktops, notebooks, and tablets...
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