IFX Day 23 Munich September 22, 23 Short-Term Semiconductor Market Outlook and Long-Term Industry Trends Page 1 VP Corporate Strategy N e v e r s t o p t h i n k i n g.
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Semiconductor Market Cycle Where are We, Where do We Expect to Go in 24 and Why? Semiconductor Market Cycle Global Dollar Volume - Deviations from Trend, Monthly Data, % - 6 4 2-2... and there, we expect to go in 24! Here, we are... Page 3-4 86 88 9 92 94 96 98 2 4e Deviations from Trend Smoothed Line Source: Infineon estimates
Table of Contents Short-Term Market Outlook Macroeconomic Environment Demand Supply Market Forecast Long-Term Industry Trends Page 4
The World Economic Outlook Appears to Brighten... United States 2.6% Real GDP Growth Forecast 23e 24e Euro Area 3.6% 5.5% 1.7%.5% 23 24 23 24 WORLD 2.2% 3.2% Asia 6.5% 23 24 Japan 1.% 1.2% 23 24 Page 5 23 24 Source: Infineon estimates; International Monetary Fund
... as Evidenced by Improving Fundamentals and Leading Indicators, U.S. Real GDP Growth and the Purchasing Manager Index 1,5 1,,5, U.S. Real GDP* - Quarterly Growth Rates - [%] [%] Q2 23 ISM Purchasing Manager Index** - Monthly Data - 65 6 55 5 45 4 35 -,5 1 2 3e 91 93 95 97 99 1 3 Page 6 * Sequential growth (q/q%), seasonally adjusted data. ** Manufacturing. Source: Infineon estimates; Global Insight
... and Likely to Positively Influence our Industry OECD Industrial Production Index and Semiconductor Market [%] 3 2 Total Semiconductor Global Dollar Volume 1-1 OECD Industrial Production Index -2-3 86 88 9 92 94 96 98 2 Page 7 Monthly data, y-o-y growth rates, normalized Source: Infineon estimates; WSTS; Global Insight
Table of Contents Short-Term Market Outlook Macroeconomic Environment Demand Supply Market Forecast Long-Term Industry Trends Page 8
Higher Growth in Electronic Equipment Demand Electronic Equipment Demand [%] y-o-y Growth 15 1 5-5 -1-15 86 88 9 92 94 96 98 2 4e Page 9 Segment Growth in 24e Total Data Proc. Consumer Wireless Autom. Ind. Wired Com Others [%] 2 4 6 8 1 Source: Infineon estimates; IC Insights Automotive Dataprocessing Segment Split in 24e Others 29% 7% 9% 21% Wireless 11% 22% Consumer Wired
Feature Enhancements and Adoption of WLAN and Bluetooth Drive Growth in Wireless Communications Wireless Communications 6 5 4 [units m] 418 New Subscribers 44 36% 484 29% Page 1 3 2 1 Source: Infineon estimates 46% 71% Replacement 54% 72 18 26 35 64% 148 52 22 23e 24e WLAN Bluetooth Cellular Phone
Y2K Replacements and Emerging Countries Expected to Drive PC Unit Sales Growth to 7% in 23 and 1% in 24 Dataprocessing [m] 16 12 8 4 PC Unit Shipments Y2K effect [PCs per 1 households] 7 6 5 4 3 2 China, India South Korea Malaysia PC Penetration EU countries Taiwan Australia 1 Spain, Greece, Portugal 86 88 9 92 94 96 98 2 4e 1, 2, 3, 4, GDP/Capita [US $] USA Japan Page 11 High growth rates in emerging countries (China 11% y-o-y, India 18% y-o-y) High growth rates for mobile PCs (Worldwide 2% in 23e and 17% in 24e) Source: Gartner; Infineon estimates
Launch of New Models and Higher Automotive Electronic Content Spur Growth in Automotive Semiconductors [No. of Model Launches] 7 6 5 4 3 41 51 New Models 57 56 German car manufacturers model launches 66 51 1998 1999 2 21 22 23e Model Year Automotive [WW Average in US $] Content [%] 25 8 y-o-y Growth 24 7 6 5 WW Average 4 23 22 21 2 19 18 Semiconductor 3 2 1 21 22 23e 24e Page 12 IAA: Model launches above average German car manufacturer model offensive replaces 5-7 years old technology by new automotive applications, increasing electronic content High volume models will be replaced (e.g. Golf, Opel Astra, BMW 5series) Source: Infineon estimates; Strategy Analytics
Global Carrier Capex is Projected to Bottom out in 24 and DSL is Seen as Major Market Driver Wireline Communications [US $ bn] 25 2 15 Global Carrier Capex Forecast -35% -8% % 4% 1 5 Page 13 Subscriber Base 2 21 22 23e 24e 25e [m] 15 1 5 2 21 22 23e 24e 25e 26e 27e Source: Infineon estimates; RHK DSL Subscriber Forecast Subscriber Base Net New Subscribers [m] 3 2 1 Net New Subscribers
Table of Contents Short-Term Market Outlook Macroeconomic Environment Demand Supply Market Forecast Long-Term Industry Trends Page 14
Semiconductor Capital Spending was Low During the Last 2 Years and is Likely to Stay Below Long Term Average in 23 Semiconductor CAPEX y-o-y CAPEX Growth [US $ bn] CAPEX Growth [%] [%] 7 11 31 6 5 7 27 Capital Spending as % of Semiconductor Sales Long Term Average 4 3 2 1 3-1 23 19 Page 15-5 9 92 94 96 98 2 4e Source: Infineon estimates; VLSI Research; IC Insights 15 1 2 3e 4e
The Utilization Rate is Approaching the "Magic 87% Margin" IC Capacity Utilization and ASP Impact Utilization Rate [%] [%] 12 97 92 87 82 77 72 67 62 1Q 99 Below 87% utilization prices decrease 2Q 99 3Q 99 4Q 99 1Q 2Q 3Q 4Q 1Q 1 2Q 1 3Q 1 Above 87% utilization prices normally increase 4Q 1 1Q 2 2Q 2 3Q 2 4Q 2 1Q 3 2Q 3 15 1 5-5 -1-15 -2-25 IC ASP Change y-o-y Page 16 Source: Infineon estimates; SICAS; WSTS IC ASP Change IC Utilization
Semiconductor Excess Inventories in the Electronic Supply Chain are Back to Industry Normal Levels Excess Inventory Situation [US $ bn] Excess Semiconductor Inventory [%] 14 12 Excess Semiconductor Inventory as Percentage of Semiconductor Sales 35 3 1 25 8 2 6 15 4 1 2 5 Page 17 Q1 1 Q2 1 Q3 1 Source: Infineon estimates; isuppli Q4 1 Q1 2 Q2 2 Q3 2 Q4 2 Q1 3 Q2 3
Table of Contents Short-Term Market Outlook Macroeconomic Environment Demand Supply Market Forecast Long-Term Industry Trends Page 18
Firm Unit Demand in Q2 23 and Shortage of Leading Edge IC Devices Already Caused an Increase in ASP Monthly Unit Volume and ASP Development 35, 3, 25, 3mma WW [units m] 3mma ASP [US $].46.44.42 Latest WSTS data confirms a beginning upward trend in overall semiconductor ASP 2, 15,.4 1,.38 5,.36 Page 19 Jul 1 Oct 1 Jan 2 Source: WSTS 3mma: Three month moving average Apr 2 Jul 2 Oct 2 Jan 3 Apr 3 Jul 3.34 Units ASP
Our Econometric Forecast Tool Confirms the Upward Trend for the Coming 12 Months Monthly Dollar Volume Development y-o-y [%] 6 4 Historical Data Forecast Period 2-2 -4 Page 2-6 2 21 22 23e 24e 3-Months Moving Average Growth Rates [%] 12-Months Moving Average Growth Rates [%] Source: Infineon estimates
According to Our Analyses only an Exogenous Shock could Push the Market below Double Digit Growth in 24,... 24 Semiconductor Forecast Risk Analysis Probability As we have learned from history, any exogenous shock is likely to impact semiconductor market growth Bottom Up Pessimistic Case Most Likely Case 15% 25% Optimistic Case Infineon Semiconductor Market Forecast: 23: 11% 24: 18% Growth Rate Page 21 Source: Infineon estimates 9% 18%
... a View that is Shared by Major Market Research Companies Semiconductor Market Forecasts 23 24 Infineon 11% no change 18% Jan 3 Future Horizons 13.1% (18.%) 25.% Jul 3 VLSI Research 11.3% (9.3%) 24.5% Jul 3 WSTS 12.3% (11.5%) 18.5% Jul 3 IC Insights 14.% no change 23.% Jul 3 Gartner / Dataquest 11.2% (8.3%) 21.1% May 3 Forecast of Previous Quarter Date of Announcement Page 22
Asia-Pacific will Lead Global Semiconductor Growth in 24 Semiconductor Market Forecast by Region Regional Growth in 24e 21% Regional Split in 24e Page 23 World Asia-Pacific Americas Japan Europe Source: Infineon estimates 5 1 15 2 25 Europe Japan [%] 19% 39% 22% 2% Asia-Pacific Americas Estimated total market size in 24: US $ 184bn
Dataprocessing Continues to be the Most Important Segment in 24 Semiconductor Market Forecast by Segment Segment Growth in 24e 21% Segment Split in 24e Page 24 Total Data Proc. Consumer Wired Com. Wireless Automot. Ind. Others Source: Infineon estimates [%] 5 1 15 2 25 Automotive Wireless Wired 14% Others 3% 14% 9% 18% Consumer 42% Dataprocessing Estimated total market size in 24: US $ 184bn
PC Unit Sales and Server Shipments Forecast to Bring DRAM Bit Growth to 54% in 23 and 56% in 24 DRAM Demand Page 25 [million 256 Mbit] 18 16 14 12 1 8 6 4 2 Q1 2 Q2 2 Q3 2 Q4 2 Q1 3 Source: Infineon estimates; WSTS 23e: 54% Bit Growth 24e: 56% Bit Growth Q2 3 Q3 3e Q4 3e Q1 4e Q2 4e Q3 4e Q4 4e Demand Higher growth in PC (7% in 23 and 9.9% in 24) and Server (11.6% in 23 and 11.7% in 24) unit sales Replacement cycle of 3-4 years Faster processor speeds require high performance DRAMs Price elasticity OEMs qualify fewer suppliers with technology leadership Long term bit growth 5-6%
DRAM Prices have Stabilised Due to Tight Supply Situation DRAM ASP and Supply Page 26 [US $] 1 9 256M SDRAM 128M DDR 128M SDRAM 256M DDR266 256M DDR333 256M DDR4 8 7 6 5 4 3 2 1 Jan 2 Apr 2 Jul 2 Oct 2 Jan 3 Apr 3 Jul 3 Source: Infineon estimates ASP Spot Market Source: DRAM exchange Supply Reduction of capex in 21 and 22 leads to only moderate capacity extensions and delayed introduction of 3mm production by competition Bit supply is expected to grow 5% in 23 Consolidation in the DRAM market is ongoing Shift to high-end DDR products
Demand for Performance Drives Evolution of DRAM Generations and Interface Technology DRAM by Generation and Interface Page 27 [units m] 4, 3, 2, 1, 64M 16M 128M The stronger penetration of dual channel systems in branded OEM desktop PCs has increased the usage of 512MB configurations Source: Infineon estimates 256M 512M 1G [%] 1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2 21 22 23e 24e 25e 22 23e 24e 8 6 4 2 Rambus SDR DDR DDR2 Major brand desktop PCs completed transition to DDR DDR333 and DDR4 penetration increased due to Springdale chipset adoption
Table of Contents Short-Term Market Outlook Macroeconomic Environment Demand Supply Market Forecast Long-Term Industry Trends Page 28
The Semiconductor Market is Projected to Remain Cyclical Worldwide Semiconductor Market History and Forecast Page 29 [US $ bn] 25 2 15 1 5 Worldwide Recession, Inventory Overcapacity Burn, Overcapacity 81 83 85 87 89 91 93 95 97 99 1 3e 5e 7e Source: WSTS; IC Insights; Infineon estimates Worldwide Recession, Inventory Burn, Overcapacity, Electronic Equipment Decline Asian Recession, Overcapacity High Semiconductor Unit Demand
China Becomes a Major Semiconductor Market Due to Production Move and Increasing Wealth [US $ bn] 3 Semiconductor Consumption by Region 25 2 15 1 5 Region Japan EMEA Asia w/o China China America CAGR 2-8 8% 6% 12% 14% 8% Page 3 22 23e 24e 25e 26e 27e 28e Source: Infineon estimates; Gartner
Investments in Leading Edge Technology is Projected to Become More and More Expensive,... Technology Cost Trends [US $ m] 1, 1, 1 Typical Wafer Fab Technology R&D 1 1.1 Litho Tool per Piece Mask Set for Logic Product Page 31 Source: Infineon estimates 1995 1999 23e 27e 211e
Innovative Concepts are Required to Reduce Cost and Optimize Performance Emerging Trend from System-on-Chip to System-in-Package Chip-on-Chip Sensor-Chip Microcontroller or ASIC wafer 3-D Stack Multichip Package Cost advantages Faster time-to-market Lower verification effort over System-on-Chip... require new package-solutions Page 32 Source: Infineon estimates
... but also Industry Co-operations and Mergers are Bound to Increase Alliances in Manufacturing and R&D Page 33 Tight Manufacturing Co-operation Loose IFX/Nanya IFX/SMIC IFX Winbond Philips TSMC Elpida SMIC TI SMIC Loose Source: Infineon estimates IFX/ IBM Altis TI UMC Sematech NEC Hitachi Mitsubishi Sanyo Sharp Matsushita Sony Toshiba Fujitsu (ASPLA) Toshiba Fujitsu TI Ramtron Hitachi Mitsubishi (Renesas) Sony Toshiba R&D Co-operation NEC Hitachi Mitsubishi (Elpida) IFX IBM Chartered Motorola Philips STM Tight
The Hype Cycle Analysis Unveils Many Promising Emerging Technologies Visibility UWB RF-MEMS Switches Micro Fluidic Biochip & µ- Pump MEMS IT Security: TPM Fiber to the Home RF-MEMS: BAW Public WLAN Hotspots 3G-WCDMA Mobile Phones Key: Time to "Plateau" Less than two years Two to five years Five to 1 years+ Bluetooth WLAN Home & Enterprise Page 34 Technology Trigger Peak of Expectations Source: Infineon estimates; Gartner, 23 Phase Trough of of Disillusionment Maturation Time-to-Maturity Plateau of Productivity Mature Product Following Product Life Cycle Curve
The Share of EMS' and ODMs is Likely to Increase in the Future and to Extend the Semiconductor Value Chain New Business Models [%] 1 Share of Total Semiconductor Market ODM EMS Manufacturing ODM Ref. Design A 75 EMS OEM A Portfolio A OEM B Portfolio B Portfolio A 5 OEM Page 35 25 22 24e 26e 28e Source: Infineon estimates; isuppli Sales Channel Consumer Increasing Competition!
Concentration in the Semiconductor Industry is Visible both at the Product Level and in Market Capitalization Concentration by Product Type and Market Capitalization [%] [%] 1 99% 98% 94% 1 8 8 6 4 5% 6 4 2 Microprocessors DSPs DRAM Total SC Market 2 42% 45% 51% 21 22 23e Page 36 Market Share of Top 1 in 22 Source: Infineon estimates; Goldman Sachs; Gartner Market Capitalization of Top 1
Consolidation with only a Few Top Players Higher Revenue Goals in a Moderately Growing Market Increasing Manufacturing Cost Rising Number of Alliances & Mergers Increasing Competition Page 37 Cyclical Market Source: Infineon Rising Number of Co-operations Industry Consolidation Concentration in Product Markets
Page 38 Never stop thinking.