Some bright spots in the global SoC markets

If you look at the numbers, it is a grim world out there for the semiconductor industry. Revenues are down, the giant foundries are working at a fraction of capacity, jobs are vanishing, and there’s no quantitative light at the end of the tunnel. But if you talk to executives with visibility into the developing-world markets, a much different story is emerging. It’s worth having a look at two points in particular.

One of these points is at the extreme low end of the wireless market—the so-called developing world handset. For a long time semiconductor vendors either didn’t see this market at all or treated it as if it were a trap. There might be literally billions of poor people in the developing world, but they were poor—how could they amount to a market?

The answer to that one, according to Pratul Shroff, president and CEO of Indian design house eInfochips, is very interesting and very important to semiconductor vendors in the handset market. Shroff said recently that to think of a cell phone as a lifestyle accessory or even a convenience is to totally misunderstand the base of the wireless market pyramid. "If you are a small farmer or a fisherman," Shroff explained, "a cell phone is a way that you can find the best market price for your produce or your catch that morning. You pay for it as you use it, maybe with a prepaid card that costs about 25 cents. And it pays you back right away in better prices for your goods." In the extreme, it pays you by finding a market for food you would otherwise have had to throw away.

The situation would be similar for anyone who sold their goods or services into volatile markets, from taxi drivers to day-laborers. And with the gradual growth of microfinance infrastructure in the developing world, a cell phone can be the gateway into the world of commercial banking for a family who would never think of walking into a down-town bank and opening an account.

This changes the whole dynamics of demand for low-end phones in the developing world. The handsets and the services delivered on them—and hence, the infrastructure that supports them—are not dependent on discretionary incomes or global trade. And in fact, Shroff suggested, that demand is proving quite resistant to the downturn, providing a welcome counter to the dismal trend in high-end phones in the industrialized world. "Eventually, the economy will end up hitting the very poorest," Shroff said. "Many who were just reaching out of poverty will slip back into it." But at the same time, the ability of Indian service providers to make money on huge numbers of tiny transactions could create a robust semiconductor market by helping these unfortunate people to get by.

Shroff speculated that there might be an important next generation for this market as well. Today, the vast majority of low-end customers in the developing world are receiving only voice service. But their fundamental need is for data, not conversation. So wireless data service may be a huge opportunity there. Yet there is a catch: most of these users are illiterate. Providing them with data services may require not only more bandwidth and more interesting handsets, but also voice- or gesture-based user interfaces and graphics rather than text.

The other bright point showed up in a conversation with Numonyx Embedded Group VP and general manager Glen Hawk. Hawk said that he is already starting to see the impact of the economic stimulus in China. "The Chinese government has provided direct help to the companies building out the next-generation wireless infrastructure in the country," Hawk said, "and they have handed out vouchers for consumer products such as set-top boxes." Hawk said he believes those direct interventions in the markets have already started to show up in semiconductor orders at various points in the supply chain.

The two points are very different. One depends for its strength on the poverty of the end-customers, which in its cruel way has isolated them from some of the impacts of the global collapse. The other depends on the determination of one national government to fight back against the seizing up of the global economy with direct intervention. Comparing the two illustrates the complexity of the new economic order that is emerging, and the sophistication with which semiconductor companies will have to search out opportunity.