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Things To Watch In 2003

Last year was one of consolidation and contraction for the compound semiconductor industry, but also one that brought new opportunities. In our annual look at things to watch, Tim Whitaker and Jon Newey describe some of the likely developments in 2003.
The GaAs industry went through considerable upheaval in 2002; Alpha merged with Conexant s wireless business to form Skyworks, TriQuint bought Infineon s GaAs business and Raytheon teamed with WIN Semiconductors in Taiwan. Agilent, Filtronic and Skyworks all closed fabs in California, while Vitesse, the first company to build a 6 inch GaAs fab, announced that it plans to exit the GaAs manufacturing business in 2003.

According to Strategy Analytics, GaAs is expected to take an increasing slice of the cellphone PA market, while automotive radar will move towards mass production. The company estimates that the worldwide merchant market for GaAs microelectronics devices (discretes, digital ICs and MMICs) was $2.4 billion in 2001, a decline of 33% compared with $3.2 billion in 2000, and is forecast to grow at a CAGR of 11% through to 2006 (see "Merchant GaAs market" graph).

While the GaAs MMIC market has already started to recover, silicon has taken over from GaAs in many digital IC sockets in telecom and datacom equipment. The digital GaAs IC merchant market declined by 54% in 2001, and is not expected to recover. Strategy Analytics predicts that the handset market will continue to dominate the consumption of GaAs MMICs, driven by an increase in the penetration of GaAs for the PA function. By 2007, PAs will account for nearly 100% of the revenue from GaAs in handsets, and the $1.2 billion market for handset PAs will grow at 8% per year from 2002 to 2007. "Most of today s PA modules incorporate amplifier chips, impedance matching elements and passives," said Christopher Taylor, director of the Strategy Analytics RF component service. "New PA modules have started to include antenna switch and other functions, and this has helped to offset price declines. Our forecast shows that this trend will make PA modules the fastest growing revenue segment in handsets."

Mobile handsets

According to Gartner Dataquest, 104.3 million mobile handsets were shipped in the third quarter of 2002, a 7.8% increase over the same period in 2001. Strategy Analytics put the figure for the same period slightly lower at 101 million units. New features including color displays, cameras and information content were heralded as the drivers that would boost handset sales even higher in the December quarter last year. Dataquest estimated that more than 40% of all phones sold in Japan in the third quarter of 2002 featured cameras. Figures from Allied Business Intelligence (ABI) suggest that in 2002 just over half of all handset sales were to existing users upgrading to new models. ABI predicts that by 2008, 85% of handset sales will be replacements.

However, in mid-December Nokia warned that its fourth-quarter revenues would fall at the low end of previous guidance due to disappointing sales of new model phones. Retailers reported that handsets with cameras and color screens proved to be a little too expensive as Christmas gifts, and the biggest sellers were models offered with prepaid subscriber plans.

A seasonal dip in the market is expected in the March 2003 quarter, but the overall market is expected to grow by 6-10%, according to Samsung and Nokia. Samsung put the figure for units shipped in 2002 at 410 million and predicts a rise to 435 million units in 2003. Nokia s figure for 2002 is 400 million with 440 million expected in 2003.

Wireless LANs

The number of WLANs deployed in 2002 mushroomed, resulting in an ever-larger number of PCs, especially portable ones, being shipped with WLAN cards. According to Forward Concepts, the value of the WLAN chip market grew by 43% to $364 million in 2002. WLANs represent a volume market for chip manufacturers, but it might not be the cash cow that the figures suggest. Plenty of manufacturers are willing to meet the rocketing demand for WLAN chips, which is resulting in plunging average selling prices (ASPs). Forward Concepts says that in 2002 ASPs dropped 31% and that pricing pressure looks set to continue in 2003. GaAs represents a relatively small part of the total WLAN market, as it is used mainly in the PA portion, and even here many manufacturers are using SiGe.

However, GaAs IC manufacturer RFMD intends to be a big player in the WLAN market. It has a high-volume GaAs IC manufacturing facility and so can offer GaAs PAs to complement its BiCMOS WLAN components at a competitive price. "The WLAN chip market might experience 20-30% ASP erosion for some time, but RFMD has experience of living in this type of market," said RFMD s Doug DeLieto. "We ve seen 15-20% ASP erosion for years in handset PAs, which accounted for 89% of our December 2002 quarter revenues." In 2002, its first year of WLAN shipments, RFMD achieved the number two spot in the WLAN transceiver market with $25 million in revenues, and is aiming to grow that to $150-200 million.

LEDs and solid-state lighting

The nitride LED industry went through massive changes in 2002, as a number of companies reached agreements relating to the use of each other s intellectual property. Most of the deals involved Nichia, which is rumored to be considering offering licenses to its white LED technology to Taiwanese companies. Japanese chip makers besides Nichia and Toyoda Gosei are now starting to enter the nitride LED market using technologies that circumvent patents owned by other companies; these include Sanken and Seiwa Electric, which are making GaN-on-silicon and white LEDs, respectively. Meanwhile, Supra Opto, the joint venture between Sumitomo Electric and Procomp, looks set to challenge the GaN-based LED industry by manufacturing white LEDs based on ZnSe. Will 2003 finally see a real commercial market for ZnSe-based devices?

Chip manufacturing and epiwafer production capacity for blue LEDs continues to grow in Taiwan, which already dominates the AlInGaP LED industry. Blue LEDs made in Taiwan are currently at the lower end of the brightness scale, which is the most price-competitive segment of the market, but are expected to improve rapidly. Elsewhere in Asia, Samsung, the Korean giant that currently orders about 30 million LED chips per month from Taiwanese manufacturers, is reportedly close to completing a large facility to meet some of its internal requirements.

The highest profile market for high-brightness LEDs is in cellphones, particularly blue LEDs for keypads and white LEDs for backlighting color screens. Samsung has predicted that 40% of all new handsets will have color screens by the end of 2003. The dark cloud on the horizon for white LEDs in handsets is the emergence of organic LEDs (OLEDs). Cambridge Display Technology (CDT) expects OLEDs to be deployed in handsets later this year. "We expect OLED displays to displace LCDs as the preferred technology in mobile handsets over the medium term," said Stewart Hough, VP of Business Development at CDT. "OLEDs offer improved performance over LCDs in terms of brightness, viewing angle and lower power capability."

Solid-state lighting has emerged as one of the most exciting new growth areas in the compound semiconductor industry. Strategies Unlimited predicts that the market for high-brightness LEDs in lighting applications will grow from $85 million in 2002 to more than $500 million in 2007. Applications such as architectural lighting, machine vision, illumination for signage, flashlights, and decorative, accent and marker lights form the foundation for lighting market growth, and have mostly used colored light. However, white LEDs are poised to enter the $12 billion market for general illumination thanks to tremendous progress in lumen output, with higher efficiencies than incandescent lamps. As well as improving LED chip technology, manufacturers are working to build white LEDs that provide more user-acceptable lighting with the correct color rendering index and color temperature for different applications. A particular effort is the focus on new phosphors and near-UV emitters.

Because solid-state lighting offers the potential for significant energy savings, various national governments have targeted LED technology for accelerated R&D funding. A national solid-state lighting effort is underway in Japan, and proposals for a US program have received broad-based support in Congress.

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