Demand for MOSFETS and IGBTs will be especially strong from automakers and their suppliers By James Carbone.
The discrete semiconductor market will post 3.5 per cent to 4 per cent sales growth annually over the next five years as revenue rises from $20.4 billion in 2016 to $24.3 billion in 2021, according to researcher IHS Markit Technology.
“The discretes market yo-yos,” said Richard Eden, senior analyst II, power semiconductors for IHS, who is based in Wellingborough, United Kingdom. “It may rise for five to seven quarters and then decline for three or four quarters. In a typical 10-year period, it would have declined in two or three of the years, but will end up higher than it started at the beginning of the period,” said Eden.
The discretes market, which includes RF and microwave devices, power transistors, thyristors, power rectifiers and small signal transistors, is cyclical and can be impacted by overly optimistic forecasts by OEMs, electronics manufacturing services providers and distributors.
“With forecasting, there is a tendency to be slightly overoptimistic,” said Eden. So, if an OEM is “slightly optimistic and their EMS provider and other global supply partners are optimistic, by the time the forecast gets to the chip maker it is higher than it should be,” said Eden. As a result, the chipmaker may over invest in capacity and when the optimistic forecast does not result in orders, prices fall and the market declines.
While the discretes business may be cyclical, it appears it will be in a growth period for the next several years. Researcher IC Insights forecasts 3 per cent sales growth in 2017 and then 5 per cent growth in 2018 and 6 per cent growth in 2019.
According to IC Insight’s forecast discrete unit shipments will post similar growth rates. In 2016, the number of discrete semiconductors shipped totaled 377.7 billion. Discretes shipments will have a compound annual growth rate of 5 per cent through 2020 when 478.3 billion discrete chips will ship, the researcher said.
One component manufacturer reporting healthy discretes demand is Vishay Intertechnology, based in Malvern, Penn. Dave Valletta, executive vice president, worldwide sales, said Vishay saw 4.5 per cent revenue growth for discretes in 2016 and demand has been strong so far in 2017.
A “crazy” market
“The market in general right now is going crazy,” he said. “All products are growing including discretes. Orders are going through the roof.” He said there is inventory buildup occurring because “customers are trying to make sure that they have enough stock. Generally, we have seen very strong book to bills,” said Valletta. In fact, the book-to-bill ratio for some discretes used by the auto industry is 1.5, he said.
One reason for strong discretes demand is the automotive business. “Automotive for sure is driving business right now in discretes, but automotive has always been strong for Vishay,” said Valletta.
Eden said automotive is driving a lot of demand for discretes especially for power transistors and rectifiers.
“The trend is toward more electrification both in car engines but also within the cars such as automated electric windows, power steering and so on,” he said. “We see automotive as being one of if not the fastest sectors for power discretes.”
Valletta added, somewhat surprisingly, Vishay saw an uptick in demand for discretes from the computer industry. “That was kind of unexpected. It was in decline but now has started to show some signs of life,” said Valletta.
However, growth in discretes demand from the computer segment may be an anomaly and may be short lived. Eden said that while computing had historically been a huge market for discretes it has been “flat or declining for the last four or five years,” said Eden.
“The boom in sales of laptops and PCs has dwindled. It’s not a big driver now,” said Eden. Communications had also been a driver for discretes, but has been flat.
However, consumer electronics has been a strong segment for discretes and the industrial segment is the largest segment for discretes, said Eden.
Strong demand for MOSFETs
While demand for discretes is rising from several segments, some discretes are in more demand than others. For instance, demand is healthy for metal oxide semiconductor field effect transistors (MOSFET) and insulated gate bipolar transistors (IGBT).
‘Demand for rectifiers is just behind MOSFETs,” said Eden. “Rectifiers are fairly stable. Rectifiers tend to be the follower not the leader. When you design your circuits, you use the best MOSFET and the best IGBT you can find. Then you pick the rectifier accordingly. You don’t design in the rectifier first, but you need them so there is stable demand,” he said.
With demand increasing, Valletta said there is “a little bit of concern in the industry with what is going on with the supply base. There’s been a significant amount of consolidation in the semiconductor industry including among discrete semiconductor suppliers and more consolidation is likely.
There are benefits to consolidation in the discretes industry for suppliers, according to Eden. “Consolidation will probably make the supply base more stable because fewer companies will get inflated forecasts,” said Eden.
He notes when there are shortages, large OEMs and EMS providers sometimes place orders with multiple suppliers to guarantee they get the parts they need and then cancel the orders if the forecasts are inaccurate and the parts are not needed. The practice often results in an inflated view of what real demand for the parts is.
“With consolidation, discrete suppliers will have a more objective view of demand from their customers,” said Eden. “The same orders will not be sent to loads of suppliers,” he said. “It will increase stability.”
Less competition
With consolidation, some semiconductor buyers are concerned there will be fewer supplier choices and less competition for their business. However, Eden said consolidation doesn’t necessarily mean less competition.
“The devices made by the consolidated companies were never the same,” he said. For example, ON Semiconductor purchased Fairchild in 2016. Both companies made MOSFETs, but their products don’t overlap much, said Eden. “Fairchild’s MOSFETs are higher power and more current while ON’s MOSFETs are lower current and lower power,” he said. Only about 5 or 10 per cent of their products overlap even though they both make products with similar names” according to Eden.
The situation is similar with Infineon and International Rectifier (IR). Infineon acquired IR in 2015. “IR was an American supplier within the American market and with some business in Asia, while Infineon was stronger in Europe and stronger and in Asia, said Eden.
“Geographically they did not overlap much and their products don’t match each other,” he said. “They complement each other. Customer side may end up getting better value,” said Eden.
However, while buyers may appreciate value they are also concerned about discretes prices. The good news is despite rising demand and consolidation, average prices should remain essentially flat in 2017 and 2018, according to IC Insights. For instance, the average price for a discrete was $0.0586 in 2016 and would be $0.0589 in 2017, the researcher said.
There is a chance that prices could increase if there is more consolidation and capacity shrinks and there are shortages. However, price increases would be temporary. “The overall long-term trend is a slow price decline for discretes,” said Eden.