Forgive the silly pun, but we’ve all heard or used the saying that something is “running out of gas”. Now, the expression can be literal, with a car stopping because it has actually run out of gas, but it’s also a shorthand way of indicating that something is losing momentum or forward progress. It can be used in relationships to indicate that things have stagnated and don’t seem to be moving on a positive trajectory. It’s often used in athletics to indicate a participant or a team that seems to have expended all the energy they have. My brother-in-law has taken up marathon running in the last few years and all marathon runners talk about “hitting the wall” (perhaps the most extreme example of running out of gas) and how you have to fight through the mental and physical obstacles to keep moving forward. Now, I am no expert in relationships or running, but I do believe that I am seeing signs of the GaAs device market running out of gas!
I just released the latest update to the GaAs Device Forecast and Outlook: 2015 - 2020 and it is a classic good news/bad news scenario. The good news is GaAs device revenue grew again in 2015. I’ll count this as the 11th consecutive year of revenue growth. Now, if you’ve seen me talk about the history of the GaAs device market, you’ll know that the “uninterrupted growth” actually includes one year of a small loss. That year is 2009 and if you were in the compound semiconductor industry, I’m sure you remember 2009 as the year that the global economy nearly imploded. Somewhat surprisingly, the GaAs device market dropped precipitously in the first half of the year, but then skyrocketed in the second half. The net result was a loss of not quite 0.5%. The following year, the GaAs device market grew by nearly 35%, the biggest increase ever, so I charitably call 2009 flat. It certainly makes for a better story and it is plausible given the uncertainty in measuring the results and the very unusual circumstances surrounding the market in 2009.
The engine driving the (mostly) uninterrupted growth during this period is wireless applications. A quick look at the 2015 numbers shows Wi-Fi and cellular applications accounted for slightly more than 70% of all GaAs device revenue, with cellular applications accounting for more than 50% of the total revenue, just by themselves. I try to use the precise term “cellular terminals” when I discuss this segment, but the vast majority of this revenue comes from mobile handsets. GaAs device growth started its upward trend in 2004 and the growth came in waves. At first, the driver was expanded mobile coverage. This was followed by the mobile wireless industry switching from analog to digital. Once consumers got a taste of digital communications and higher data rates, demand exploded. Devices, networks and wireless standards evolved to meet the traffic demands. This evolution culminated in sophisticated smart phones that support and enable the rapid growth in wireless data traffic. For the last several years, the biggest trend for mobile devices and the GaAs device market has been the rapid adoption of smartphones. These devices have to accommodate multiple bands and this means lots of RF content.
Operators and manufacturers continue to add bands to accommodate higher data rates, so doesn’t this mean more good times for the mobile market and GaAs device revenue?
Well, here is where the bad news starts. The overall handset market growth has not been explosive for quite some time, but the volumes have been growing steadily. While handset volume is still growing, this growth is slowing. Of even more importance is the slowdown in the rate of growth of smartphones. Not so long ago, smartphone growth was exploding. The growth rate of smartphones from 2008 – 2014 was about six times higher than we forecast it will be from 2014 - 2020. We appear to be nearing new user saturation in the smartphone market and replacement cycle volumes don’t match new demand from previous years. Even though smartphones will contain more bands and use more carrier aggregation, the increase in RF content will struggle to counterbalance price erosion, slowing volume and the share lost to competitive technologies in this segment.
As a result, the growth engine for the GaAs device market seems to be running out gas!
This should be concerning to GaAs device manufacturers, but all is not lost. I am extremely optimistic that the architectural evolution for devices and networks that will get us to 5G can be the next growth engine for the GaAs device market. In fact, the latest forecast shows some growth toward the end of the period as the industry begins 5G deployments. So, just like the relationship or the runner, the GaAs device market may have to modify expectations for a period of time and wait for the inevitable second wind to carry it to new heights.