Semiconductors Overview

The cyclical nature of the semiconductor industry, coupled with the economic downturn, meant that it experienced significant decline between 2001-2002. Since that time, the industry has posted higher growth rates, driven primarily by growth in demand for wireless communication chips. The US market was estimated at $44 billion in 2004, following annual growth of 14.1%. Demand from the processor-based electronic goods industry is expected to propel growth going forward, leading to continued double-digit expansion.

Microprocessors and chipsets form a substantial part of the semiconductor market. These segments of the industry have witnessed most of the cutting-edge developments and growth in the last few years. Areas such as SOCs (System on Chip) and wired networks have also seen strong growth. However, integrated circuits and memory chips experienced slow growth on account of availability of more competitive products abroad, principally from Taiwanese manufacturers.

Due to the capital-intensive nature of the industry, with only large players having the financial muscle to invest large sums of money, there has been significant consolidation in recent years. Most of the smaller players have moved to less competitive areas or have been acquired. Even the larger players are facing significant pressure on margins driving them to outsource manufacturing.

The leading players in the US semiconductors industry include Intel, Samsung Electronics, Texas Instruments, ST Microelectronics and Infineon Technologies. The top five players have a share of approximately 33% in the global market. Intel leads the industry with a global market share of 13.7%. The company is a leader in the microprocessor market with almost four out of every five PCs sold across the world running on its processors. Intel has had increasing success with its nanotechnology initiative, and in 2004 started manufacturing processors with a 65 nanometer thickness, the first company in the world to do so.