The Big Picture

Business is booming for the makers of processors. Intel posted its five consecutive record quarter, AMD turned a profit, Tensilica shipped its billionth DSP, ARM and MIPS are both reporting strong earnings. So what’s changed?

There are several distinct trends driving this upbeat mood:

1. The replacement cycle. After years of putting off purchases through a prolonged and deep downturn, companies are replacing their equipment. They’re buying new laptops, tablets, smartphones and servers. And even where they’re outsourcing to external clouds, the cloud providers are ramping up with new server purchases. The recovery may be shaky, but there is only so long that these kinds of purchases can be delayed before a company’s productivity is affected.
2. There is an economic shift driven by energy efficiency. While it may be nice to own a car that gets better mileage or have solar panels on the roof of your house, those aren’t necessarily economically motivated decisions. When you think about the amount of power consumed in an inefficient data center, however, it’s a whole different formula. There are millions of dollars a year at stake in energy costs, and if it’s being wasted through leakage then it makes sense to replace racks of servers with more efficient ones. Economies of scale work on the negative as well as the positive side.
3. There is more semiconductor content in places where there wasn’t automation in the past. An automobile is the most visible example. The amount of electronic content in cars is on the rise, and it will continue to rise because it’s the only way of achieving big gains in mileage efficiency. But the same kinds of trends are under way in industrial applications and in medical devices, where the handheld monitor business is exploding. It’s also happening in lighting with LEDs and in the MEMS market, which will probably converge with more standard digital logic once 3D stacking begins to take root.

While there may be blips along the way, as various geographies experience macroeconomic good and bad times, these are long-term growth opportunities for all chipmakers. And they’re long-term growth opportunities for tools vendors that can help improve time to market, cut costs and integrate existing technology with new technology.

–Ed Sperling