The large European semiconductor IDMs are losing ground and need to accelerate the process of going fab-lite, concentrate on fewer products, and pursue more focussed R&D, Jerome Ramel, head of the semiconductor analyst team at the French bank BNP Paribas, told the European Nanoelectronics Forum 2009 in Amsterdam.
In 2007, there were three European companies in the world top ten, accounting for 10% of world market share, pointed out Ramel.
In Q2 2009, there was only one European company in the top ten, and the top three European companies accounted for 7% of the world market.
In the market share battle, there has been a shift from the generalists to the specialists, argued Ramel.
The biggest market share decliners in the 2007-Q209 timeframe are NXP (down from No.10 in the world rankings to No.19), Freescale (down from No.13 to No.20), and Infineon (down from No.5 to No.13).
By contrast, in the same timeframe, the more focussed companies have gained market share: Mediatek (up to No. 17 in the world rankings from No.27 in 2007); Qualcomm (up to No.7 from No.11 in 2007) and Broadcom (at No.15 up from No.17 in 2007).
Ramel summed up the 'big manoeuvres' that have taken place in the European semiconductor industry:
- Infineon out of wireline and DRAM;
- NXP out of wireless and merging its DTV and STB business with Trident;
- STM out of NOR flash and absorbing NXP's and EMP's wireless activities.
"The European players have started to implement fab-lite models, but in-house manufacturing is still high compared with their American peers," said Ramel.
The European players are much more exposed to automotive and industrial markets, according to Ramel, who pointed out that 30% of ST's revenues derived from these two sectors; 66% of Infineon's revenues came from these two markets, and 77% of NXP's revenues came from the two sectors.
The key issue with the European semiconductor industry is profitability, said Ramel, with the American companies much more profitable than the European companies. Whereas US gross margins increased over the 2005-8 time frame, European margins declined.
Ramel attributed this to relative 'R&D efficiency'.
"In the last four years, the US peers have generated 0.4 USD of incremental sales per year for each USD spent on R&D, compared with 0.03 among the Europeans", said Ramel.
While both the US and European companies spent about 20% of sales on R&D, the incremental sales per R&D $ were 42% in the case of the Americans and 3% in the case of the Europeans.
So much for European weakness. The strength of the European semiconductor sector lies in its position in certain sectors:
- In automotive, Europe has three players in the top five - ST, NXP and Infineon. Europe is responsible for 56% of all automotive semiconductor consumption.
- In industrial ICs Europe has two players in the top five - ST and Infineon. Europe represents 40% of industrial IC consumption.
- In wireless, Europe has the second biggest player in ST-Ericsson which has a strong position in 3G/LTE, and Infineon "enjoys some good traction with Apple/Samsung/LG", said Ramel. Europe represents 44% of all semiconductor consumption in wireless with Nokia by far the largest consumer of wireless ICs, buying $13bn worth a year. (The next largest wireless IC consumer being Samsung at $7.4bn).
The European semiconductor industry has gone some way along the right road towards consolidation, fab-lite and exiting memory, said Ramel, but it needs to grow faster in automotive and industrial, possibly by acquisition, and needs to accelerate out-sourcing and allocate more resources to product development.
The European industry also needs to focus on R&D efficiency, increase the proportion of sales which come from new products, and focus on premium product, he said.
The recent pruning of product portfolios should produce more focussed R&D which will, in turn, produce premium products which will, in turn, translate into better market share and greater profitability, concluded Ramel, adding that a bigger R&D effort needs to be made.
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