New directions in the ST way

Interview with Jean-Philippe Dauvin, Vice President of Education & Knowledge

In 2006, for the third year in a row, the mobile phone market has grown above 20% - an unexpected performance which has propelled the yearly sales into over a billion pieces and the worldwide subscriber base into the three billion range.

Obviously the dynamism of emerging countries’ demand is a key factor here, but renewing the installed base in the mature world has also contributed to the growth. In the near future, new markets and old ones will be equal in terms of numbers of phones, but in value terms, mature regions will account for two thirds of the total demand.

Looking at the buoyant communications market, the PC makers should feel a bit nostalgic, remembering the 80s when demand was growing at a steady 16% a year. Today, this rate has fallen by half, despite the raging price war, and the large potential of emerging countries. Demand saturation, a lack of innovation and high prices despite their recent fall has limited PC market growth to just 6 to 8% a year. As a result, the relative share of PCs will shrink to 40% of the market, compared to 30% for communication.

Let’s think about some of the different consumer markets for a second. It includes home PC, mobile phone, digital audio and video, gadgets and automotive applications. Ten years ago, these ‘consumer applications’ represented just one third of the total chip market; we expect them to account for at least two thirds by the end of this decade (150 US$B to 180 US$B). To capture these market opportunities, semiconductor makers have to adapt themselves to today’s consumer value chain rules: low cost, but highly differentiated products, rapidly changing applications, and a very fragmented market. For semiconductor companies, this is all but a revolution. It affects everything: the product cycle time, our design methodology, our manufacturing strategy and our geographical localization.

Since 2001, our industry has never regained the attention of the financial markets, despite the fair near-term perspective, the excellent financial situation of semiconductor companies, and their low market capitalization. Private equity firms in mid- 2006 have invested in our industry in buying through Leverage Buy Out (LBO) for 25 US$B or so, Freescale, Philips Semiconductors, and ASE, the Back-end leader. But for private equity, these stakes are marginal: less than 5% of the 800 US$B total private equity operation in 2006. Having said that, these new partners will play a strategic role in the industry consolidation process.

Then there’s the consumerization of the semiconductor market, and the new market opportunities, such as medical and healthcare. These new trends will change the relationship between the players of the food chain. Many of these consumer products and, in the near future, those addressing health care and medical applications, will have a very high semiconductor content (See page 52).

In other words, the performances of these products will be totally dependent on semiconductors. Customers are going to want portable products with low consumption, low emission and high recyclability, and semiconductor vendors will be responsible for meeting those requests.

By the end of this decade, when health care applications will be a much larger market, semiconductor companies will also have a far more global responsibility. As a result, even more stringent than it is today, Corporate Responsibility (CR) will appear side by side with the traditional price and performance of the chips, as key differentiators between the vendors. And companies such as ST, which have invested early in CR, will definitely be candidates for growth and profitability in terms of satisfying their stakeholders.