With suitable acknowledgement to the Grateful Dead, the new year provides a good time to reflect on 2020 and see if the compound semiconductor industry will "keep truckin' on" in the next several years. Without question, 2020 was an extraordinary year. The COVID-19 pandemic, now more than one year old, is still a primary factor influencing global economic growth and spending trajectories. In addition to COVID, 2020 saw a US-China trade war heat up, along with a very contentious change of direction for the US government. These events and others have triggered turbulence in the electronics industry, reaching every level of the supply chain. However, this turbulence creates opportunities, and this insight investigates some of the important trends that we see affecting the compound semiconductor market in 2021 and beyond. The seminal question becomes how to position your company to take advantage of these opportunities.
It is easy to overlook the RF GaAs market. The technology is mature, long-term revenue growth has been steady, but not spectacular and after an extended period of growth, revenue in the last couple of years has declined. However, we cannot overlook the revenue RF GaAs devices generate. Even with a revenue decline in 2019 and another expected in 2020, GaAs device revenue is still an order of magnitude (or more) higher than RF revenue from the other compound semiconductor technologies.
Mobile handsets account for more than half of total RF GaAs device revenue, so there was a very real concern that COVID-related impacts to consumer spending would have an enormous effect on GaAs revenue. In the early days of the pandemic, initial estimates pointed to GaAs revenue declining by nearly 12% in 2020. This wouldn’t have been a death blow to the industry, but it would’ve erased a significant of GaAs device revenue. As the year progressed, this situation brightened to the point where it appears to be much less of a decline than seemed likely in early 2020.
The savior for the GaAs device market will be deployments of 5G networks and consumer devices. What are the trends and drivers that will fuel this resurgence? What companies will be the leaders in this resurgence? How should you position your company to grow your GaAs revenue?
The millimeter wave functionality of 5G networks provides a fundamental enabler for the 5G vision. Total bandwidth in the millimeter bands is much more plentiful than in the sub-6 GHz band and this translates directly to faster data speeds. While the advantages of millimeter wave transmission are compelling, there are challenges. One of the main challenges is increased path loss, resulting from the millimeter wave signal propagation characteristics. The practical implication of higher path loss is a smaller base station footprint. This, coupled with a desire to get to Gbps wireless data rates, is the impetus for a wireless network that relies heavily on lower power small cells. The size of the small cell footprint is making the economics of meaningful millimeter wave coverage areas challenging for operators and equipment manufacturers.
There is a substantial effort underway to expand the geographical coverage of these millimeter wave small cells and the results have been promising. Part of this effort to expand the range and improve the business model of millimeter wave small cells revolves around base station architectures. We identified some strong trends in 2020 that we expect will continue and intensify in 2021.
These trends should be of particular interest to the compound semiconductor industry because as these trends progress and mature, they will provide an advantage for certain semiconductor technologies and architectures over competitive solutions. The timing and extent of millimeter wave network deployment will be determined by factors like the number of radiators in a massive MIMO antenna, the mix of hybrid and digital beamforming and the RF share of GaN, GaAs and silicon in the networks. Strategy Analytics will continue to monitor and analyze these trends and we can help you maximize your 5G revenue.
There was real concern in the initial stages of the COVID-inspired lockdowns that the decentralization of network traffic from urban centers to the edges that resulted from so many people working from home would overwhelm network capabilities. This obviously did not happen, but it has provided some interesting opportunities. Many network operators did report initial traffic increases of more than 30%. In addition to the overall traffic increase, traffic is becoming a bit more symmetrical. Primarily the result of drivers like a dramatic increase in online video meetings and the rapid increase of “at home” applications. Network traffic shows no signs of returning to pre-pandemic levels and this has interesting implications for network equipment manufacturers and service providers.
Network expansion, whether is wireline, wireless or data centers is an expensive proposition. Network operators follow well-established “laws” of traffic growth, but this COVID-related traffic impulse has pulled in the need for expansion by significant amounts. This network pull-in will be a short-term trend since service providers must quickly react to this new data growth trajectory. This short-term scramble will provide opportunities.
Longer term, the trend will be toward a different mix of fiber, wireline and wireless network architectures. These different architectures place a premium on different compound semiconductor technologies. What will be the shares of these different network architectures? What are the performance requirements to enable these architectures? What technologies will be most competitive in these applications? Strategy Analytics can help you answer these questions.
RF GaN revenue jumped substantially from 2018 to 2019. A big part of this rapid growth was the result of the US-China trade tensions. GaN has seen strong adoption in defense and base station applications, but can the industry maintain this growth rate? A new US administration may signal changes in both the US-China trade tensions, along with defense priorities.
RF GaN devices have successfully passed the “process maturity” hurdle and the performance advantages are rapidly increasing the share of the market for GaN-based devices, but base station and defense applications look to remain the largest users. China is looking to 5G as an engine to jump start their post-COVID economy. What does the timing and trajectory of these deployments look like? Will other countries that were vying with China in the pre-COVID 5G “arms race” follow a similar path? What happens to US defense funding and what does that mean for GaN? Strategy Analytics can help you take advantage of these opportunities and trends.
The events of 2020 presented big challenges to the electronics industry, but the industry seems to have weathered the storm. The situation at the start of 2021 looks nowhere near as dire as it did in the first calendar quarter of 2020. One of the by-products 2020 appears to be a change in the trajectory and drivers for several market segments. Some of these changes will be positive and some will be negative, but there is opportunity in change.
These opportunities will extend to the compound semiconductor industry. It will, however, require a good understanding of the future trends and drivers for market segments of interest. Strategy Analytics has a long history of analyzing and supplying actionable intelligence and insight into these opportunities. We are happy to explore these trends in more detail to help you maximize your revenue and optimize your participation in these opportunities.
If you’d like to explore these or any other topics in more detail, please feel free to give me a call.
-Eric