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Chipmakers tested by automotive market's marathon pace

Posted: 03 Oct 2013 ?? ?Print Version ?Bookmark and Share

Keywords:automotive electronics? Power Management ICs? Production Services?

Junko Yoshida discusses the dilemmas faced by chip companies in dealing with the automotive electronics market. Yoshida also tackles the uncertainty surrounding EVs and how non-traditional players in the automotive market are focusing on high growth areas such as the infotainment sector.

I don't think I'm alone in wondering why any chip company these days would stay in the automotive electronics market.

Let's face it. Carmakers are notorious for beating up semiconductor suppliers over pennies. They demand high-standard, "automotive quality" for every IC they procure. These chips need to last longer than a car, which means a very long product life cycle is required for every automotive chip.

Carmakers say they need innovation, and yet the typical automotive product development cycle is about five years. In most other industries, the whole worldof technology, market trends, consumer preferences, and pricingchanges within three years.

To top it off, automotive doesn't exactly offer either the fastest growing or the largest volume market for semiconductor companies.

Reasons to stay
At the European Microelectronics Summit here last week, Ian Riches, director of global automotive practice at Strategy Analytics, concluded that "mainstream automotive is starting to look less attractive to some semiconductor vendors."

Comparing the car biz to the mobile industry, Riches pointed out that it takes more than five years to develop a new model, while the development cycle for a mobile handset is two years. A car's lifetime is about eight years, while a smartphone lasts only 1.5 years. Perhaps, the only positive for automotive chip suppliers is that the semiconductor content in a car is higher in value. He estimates some $1,000 worth of electronics content inside a car, compared to about $130 per smartphone. But of course, the volume of global car sales totally pales when compared to mobile phones.

Figure 1: Automotive semiconductor demand ($ billion).
Source: Strategy Analytics.

The case for chip companies to stay in the automotive market has two solid arguments. The first is the strong growth in advanced safety application. The second is the continued development of hybrid electric (HEV) and electric vehicles (EV).

In fact, automotive is a "stabilised" market, said Riches, with its overall semiconductor demand (in value) growing at a steady pace of 7 per cent every yearbetween 2012 and 2017.

Of the total auto semiconductor market, the biggest market driver is Advanced Driver Assist Systems (ADAS). Strategy Analytics forecasts ADAS chip demand reaching $3.5 billion in 2020. If this comes true, roughly 10 per cent of the automotive chip market will be generated by ADAS by then. The Compounded Average Annual Growth Rate (CAAGR) for ADAS is 23 per cent from 2012 through 2017, according to Riches.

Hype surrounding EV fades
Strategy Analytics similarly pegs semiconductor demand for HEV/EV to become as large as $2.6 billion in 2020, with its 2012-2017 CAAGR at 22 per cent. However, Riches acknowledged that growth in "the EV end of the HEV/EV market is less certain."

"The hype bubble has now burst," he added. There have been already some significant failures in the EV market.

But ignoring the EV trend is the worst mistake the electronics industry could make. "The main danger now is to underestimate the long-term importance of vehicle electrification," he warned. The energy shift towards greater electrification is "beyond question," he noted. What's debatable is "the speed of travel," he added.

Several separate issues are making the sales of hybrids and EVs less certain than the automotive industry's early predictions. "Many electrified-vehicle customers remain highly brand-conscious," Riches said. These consumers "will not pay prices inflated above that brand's normal price range in order to access electrified vehicles."

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