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Semiconductors - A Crazy Industry

Feb 11 2014, 6:58pm CST | by

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Semiconductors - A Crazy Industry

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Semiconductors - A Crazy Industry

The global semiconductor industry exceeded $300 billion in sales for the first time ever in 2013, spurred by consistent, steady growth across nearly all regions and product categories.

Last year’s semiconductor revenues came to $305.6 billion, an increase of 4.8% over 2012′s total of $291.6 billion.

From a long-term historical perspective the way this industry works is absolutely astounding.

The semiconductor industry is unique, unlike anything else in the history of the world.  For half a century this business has been running and churning every year, year after year, devouring significant bank-loads of capital, and, in return, delivering huge gains in performance, productivity, and cost-effectiveness.  The performance gains provided by semiconductors are unheard of in any other industry, increasing by roughly 25-30% per year.

But this industry’s financial returns are completely offset by steep price declines.  Users keep getting more and more performance, but in the end, they pay about the same amount every year no matter how much performance increases.

Industry revenues in 2000 peaked at $204B, driven by the boom and a resultant shortage.  Thirteen years later the industry has grown to $306 billion in revenues  for a CAGR of about 3.2%/year.

Out of the 25-30% in benefits that the semiconductor market provides the world, it gets to keep, for its share, about 3.2% which shows up as revenue growth.  The rest of the benefits end up in the pockets of downstream users, end consumers and system makers who are more adept at capturing the benefits they create, and sometimes it it flows through to their customers.

In fact, the semiconductor industry’s $306 billion in 2013 revenues probably paid for 20-30 times the functionality of the $204 billion worth of semiconductors sold in 2000.

Is this trend ready to slow down?  I seriously doubt it.  Not yet, anyway…

Thanks to Lane Mason for his insights on this post.

Source: Forbes


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