SAN FRANCISCO — Device makers up and down the semiconductor landscape are poised to cash in on what is shaping up to be another monster year for the semiconductor industry, but it may well be the capital equipment makers who are best positioned to capitalize this year and beyond, according to a panel of analysts at the Semicon West tradeshow here Tuesday.

Pierre Ferragu, managing partner at New Street Research, summed up the sentiment, saying that AI and other major shifts in the semiconductor industry are setting the stage for major wars on the technology front, with outcomes that are difficult to predict.

"But there's one person that always wins in a war, and it's the arms dealer," Ferragu said. "In this industry, the capital equipment companies are the arms dealers."

Paced largely by continuing strong demand and rising prices in memory chips, the semiconductor industry is poised to grow 15 percent or more this year and could crack the $500 billion mark for the first time in 2019, analysts predict. Some market watchers — including SEMI president and CEO Ajit Manocha — forecast that global chip sales could top $1 billion per year in the next seven to 10 years.

SEMI's annual Bulls and Bears panel, a staple of the conference for more than two decades, revealed yet more exuberance, with participants highlighting massive waves of demand being created by AI, IoT and other emerging technologies. They predicted that the consolidation that has gripped the industry for the past few years will continue and said that the violent cyclicality that has characterized the semiconductor business since its inception has largely moderated.

From left: Pierre Ferragu, managing partner at New Street Research; Mark Edelstone, managing director at Morgan Stanley; and veteran semiconductor industry journalist Don Clark, the panel's moderator. Credit: Dylan McGrath/EE Times
From left: Pierre Ferragu, managing partner at New Street Research; Mark Edelstone, managing director at Morgan Stanley; and veteran semiconductor industry journalist Don Clark, the panel's moderator.
Credit: Dylan McGrath/EE Times

"The cycles will be more muted," said CJ Muse, senior managing director at Evercore ISI. As evidence, Muse said that even as DRAM prices continue to rise, Samsung Electronics has pushed back capital spending for DRAM capacity expansion by one to two quarters. "I've never seen that in my time on Wall Street where a supplier cut capex at the peak of the cycle," said Muse, who has covered the industry for 25 years.

Srini Pajjuri, a senior semiconductor analyst at Macquarie Capital, cautioned that business cycles are kind of unavoidable. But he added that the severity of downturns in the semiconductor space has changed dramatically in recent years. "In the old days, we used to call negative growth for a year a cycle," Pajjuri said. "Now, the most recent cycle was in the second half of 2014 when TI missed estimates in one quarter."

Pajjuri did caution that his firm expects the pace of chip sales to slow down in the second half of this year, although he still expects the industry to be up significantly for the year.  "At this point, the growth we are seeing — more than 20% — is probably not sustainable," he said.



Srini Pajjuri, a senior semiconductor analyst at Macquarie Capital, cautioned that business cycles are kind of unavoidable. But he added that the severity of downturns in the semiconductor space has changed dramatically in recent years. "In the old days, we used to call negative growth for a year a cycle," Pajjuri said. "Now, the most recent cycle was in the second half of 2014 when TI missed estimates in one quarter."

Pajjuri did caution that his firm expects the pace of chip sales to slow down in the second half of this year, although he still expects the industry to be up significantly for the year.  "At this point, the growth we are seeing — more than 20% — is probably not sustainable," he said.

Even with heightened regulatory scrutiny scuttling some acquisitions in the semiconductor space in recent months, panelists said they expect hyper consolidation in the industry to continue.

"We are probably in something like the third inning of this level of consolidation," said Mark Edelstone, a managing director at Morgan Stanley. He said the biggest reason for the ongoing consolidation is that growth rates for most types of devices are lower than they had been, while at the same time costs are going up exponentially — particularly at 7nm and below.

"It's just hard to find the markets if you don't have economies of scale," Edelstone said.

Edelstone added that its difficult to get a handle on the current regulatory environment, saying many people were surprised when U.S. President Donald Trump blocked the potential sale of Qualcomm to Broadcom and saying the blocking on national security grounds of the proposed sale of Lattice Semiconductor to a Chinese equity firm funded in part by the Chinese government was also difficult to understand. Most troubling of all, he added, is the continued delay in obtaining the approval of China's Ministry of Commerce for the acquisition of NXP by Qualcomm, which appears to be motivated at least in part by political factors.

But Edelstone said he fully expects the era of hyper consolidation to continue. "At least in board rooms that we participate in, we aren't hearing people say that deals shouldn't happen because of the regulatory risk," he said, adding company boards want to understand and analyze the risks involved. "It would be my perspective that most of the deals are still going to go through," Edelstone said.

— Dylan McGrath is the editor-in-chief of EE Times.