5G Virtual Expo was held recently. There was a panel discussion on unlocking the potential of 5G. The participants were: Håkon Lønsethagen, Telenor, Research, and 5G Infrastructure Association (IA) member of the Board (EU 5G PPP), Edwin Bussem, Developer Next Generation Infrastructure, KPN, and Ms. Friederike Hoffmann, EVP, Head of Connected Business Solutions, Swisscom. Ms. Julie Snell, Chair, The Scotland 5G Centre, was the moderator.
How are we going to integrate the 5G network into the existing network? Edwin Bussem, KPN, said we are on the verge of being able to provide service levels on wireless connectivity, and there can be a wait-and-see situation with customers. There is a waiting game going on to see who goes first.
Ms. Friederike Hoffmann, Swisscom, added that their issues have not been about integrating with the existing infrastructure. However, some of our antennae have been demolished in Switzerland. Can you imagine that? We are installing a mobile 5G network. We are also working on automated vehicles. The private customer mind is very careful and hesitant in Switzerland. We can’t build the entire network as fast as we want to. We can’t make the networks strong, as needed to be, to fully test the use cases that we need, and to onboard more enterprise customers.
Ms. Julie Snell agreed that people are attacking networks that are not necessarily 5G. There seems to be a real concern that it is not safe enough.
Håkon Lønsethagen, Telenor, noted that in Norway, there have not been that many cases, compared to the UK and Switzerland. We are aware of these things and how we communicate carefully to the public. We are doing this is in a very well-thought way. We are installing and providing services in a secure way. It is also a matter for enterprises and verticals to step up and do testing, along with the operators. They also need to understand the pain points they would like to solve. We are trying to create methodologies to interact with the enterprise vertical customers.
Ms. Snell said there is a trial-and-error method on the move towards establishing standards. Ofcom, UK, released a report that calmed down the situation. Bussem, KPN, said we are trying to project what are the societal benefits that we are going to bring. The public are willing to give it a chance.
Satisfying 5G quintet
Next, there was a point raised about how will 5G satisfy the quintet of trusty, reliability, latency, and bandwidth efficiency.
Håkon Lønsethagen, Telenor, said that they have been able to define some new mechanisms with 5G. Eg., radio channel coding and how we use the spectrum. If you want to aim for high capacity, you typically introduce some buffering and channel coding. That may sacrifice some latency performance. So, there will always be this trade-off. You can probably deploy in private networks with industry use cases. It also enhances mobile broadband. You can also combine this with edge computing. There is 5G and network slicing. It allows you to allocate resources to the demand that you have. You can start optimizing across the whole 5G system. You can also build purpose-built logical networks. Eventually, you can think of green ICT.
Edwin Bussem, KPN, added that there are technology-related benefits with 5G coming into play. It is about optimizing per use case, and per field of interest. We need to provide societal benefits. We are being very careful in what we are promising the market. That’s the sort of prudence you need to take when you consider the quintet.
Ms. Friederike Hoffmann, Swisscom, noted that they have the opportunities to manage the quintet way better than before. Companies don’t stop at national borders. You have production facilities all over the world. We also need standards, and to learn from each other. We usually do this in telco networks and classical partnerships. We need to make sure that when trains are self-driven, they also do not stop at borders. We can do this, and are working on it. There are also gaming opportunities. We can manage resources way better than before, and be more energy efficient. We are going to need close-knit partnerships and ecosystems that are just evolving.
Håkon Lønsethagen, Telenor, said they are migrating to inter-border capability. We are seeing advanced use cases. We still need some time. We need to step up as a community. With 5G, there are use cases that are quite demanding. We also need to develop inter-provider-based services and capabilities.
Ms. Julie Snell said that there is more of a shift toward private networks, eg., in campuses. We need to integrate these private networks to be part of a global network. MNOs are also providing new products and pricing.
Ms. Friederike Hoffmann, Swisscom, said that it is creating a challenge. We did a terrible job at monetizing 4G. When networks are full, we do need the capacity. Do we need more products and pricing? Of course, we do! It also depends on the market segment. There are qualities of service levels that are now possible, that were unseen on 4G. Customers understand there is a big value for them in 5G. They are also making efficiency gains. The use cases of 5G need to be very clear. Customers are also weighing their options carefully, before investing.
Håkon Lønsethagen, Telenor, said there is so much to do in 5G. There are solutions today, and more will happen within the next three years. There will also be society- and citizen-critical services. The application level cannot really express their intent to the network today. We have to work on this. We need to reach the optimization challenges ahead of us.
Edwin Bussem, KPN, agreed, adding that we need to look at what are we handling. You have to treat situations differently, and also have to prepare yourself as an organization. You also have to re-organize your own internal operations. You can charge some price. This is all new to us. We are going to build pricing models on a firm-by-firm basis. We have to take the potential use cases.
Emerson Users Exchange 2021 was held today. Ms. Vidya Ramnath, President, Emerson Automation Solutions, Middle East and Africa, delivered the keynote. For those interested, I had met up with Ms. Ramnath, while in Singapore at Control Engineering Asia, in 2015. So, it was really nice to reconnect with Emerson.
Ms Ramnath said the MEA region is a fast-growing area for Emerson. Countries are blessed with very good natural resources. There is also a rethink toward future direction. There are three key areas for Emerson: digitalization, diversification, and decarbonization.
Emerson has three goals: discover, design, and deliver. Human progress has been delivered on the bedrock of the ability to discover, design, and deliver. There have been millions of vaccination doses given out this year. Emerson is working with the vaccine manufacturers to speed up their production. We are also helping in the ventilator production and healthcare.
Significant changes happened in 2020. There was oil and gas demand shock. There was also the gain in momentum in environmental, social, and corporate governance (ESG) and sustainability. There were opportunities for diversification.
Emerson’s digital transformation journey began with small investments, RoI-focused initiatives. We offered solutions for asset health monitoring, industrial analytics platform, etc. We have also seen the application of PlantWeb Insight for thousands of assets enterprise deployment with AI/ML. Technology deployment is no longer a problem. It is helping in the customers’ digital future. There is also an emerging need to build a strong industrial backbone.
Emerson is also assessing the ESG and sustainability. We will reduce greenhouse gases by 20 percent by 2028. There is also energy use, supply chain, reliability, etc. Greening by Emerson will see greening through Emerson’s products, expertise, solutions, and services. Greening with Emerson will see engaging the external shareholders by partnering on solution development, etc.
Thomas Schulz, Channel Manager CEE, GE Digital, presented cyber security as the key condition for Industry 4.0 adoption, on the concluding day of SEMI Technology Week.
With the introduction and integration of Industry 4.0 devices, platforms and frameworks to existing systems comes the issue of interoperability. In industrial environments, securing interconnectivity between diverse devices is often challenging. Difficulties in ensuring security in Industry 4.0 result also from lack of technical capabilities of connected industrial devices and systems, especially considering integration with legacy infrastructures.
Cyber security in manufacturing is very essential. Fast progress is key to enable the valid responses to cyber threats in the future manufacturing environment. Here, the dependence on networks and information systems will increase rapidly. Attacks become smarter, and therefore, they need to be protected against. The semiconductor industry and manufacturing industry can be particularly vulnerable to attacks.
There are technical fields of action for cyber security. There are mobile and intelligent systems, platforms with hosted apps, and factory as an app domain. The physical assets need to be protected. Security by design, and security by default must be guaranteed at the outset.
Industrial automation and control systems, such as SCADA, DCS, ICS, BAS, and PLCs need to be secured. The equipment used in semiconductor manufacturing includes OT, that manages and monitors the industrial process assets, and manufacturing or industrial equipment. Cyber security must protect the automation and control systems to your physical assets and equipment.
There are factors influencing the technical fields of action. The German BSI or Federal Office for Information Security, Platform Industrie 4.0, and associations, such as SEMI are well established. There is compliance with ISO/IEC 2700, IEC 62443, VDI/VDE 2182, and SEMI E169 and SNARF 6506.
The IEC 62443 security for industrial automation and control systems was adopted globally. It created a framework and common language for the end users to communicate their requirements. IEC 62443-2-4 established that manufacturers must demonstrate that security measures are incorporated in their development lifecycles across four key areas: organization, system capability, commissioning and acceptance testing, and maintenance and support.
A penetration test, also known as pen test or ethical hacking, is an authorized, simulated cyber attack on a system that is conducted to assess the security of that system, and identify vulnerabilities. The Achilles test platform is a communications robustness test platform to test and monitor network and operational parameters of devices under real-world conditions. The Achilles Communications Certificate (ACC) verifies the network robustness.
Deep packet inspection (DPI) is used extensively to prevent attacks. DPI systems should always be kept up to date. There is an important role of IDS and IPS in network security. There is also the OpShield from GE Digital to inspect, enforce, and control. You can protect OT networks structurally via virtual segmentation. It creates zones that reduce the mobility and damage of a misconfiguration, or an attacker. The time to act is now!
Holistic data and computing platform for advanced semiconductor manufacturing, was presented by Tom Hoogenboom, System Engineer IT, ASML, and BG Lee, Director, ASML, on the concluding day of the SEMI Technology Week.
Holistic lithography is data hungry. Chips are ‘made with data’. The position and shape of every pattern element must be set with sub-nm precision. Holistic lithography is built on data. It helps building the digital platform of the future. We also have the digital platform for patterning.
Holistic lithography is our world. It helps compute the best process and actual process windows. There are compute process corrections. The nm level is fine grained. We have now moved from PCs to central computing platform. Today, we operate the digital twin of a fab. If we go to a new node, we analyze everything that has gone on with the previous, old node.
It is important to note that nm performance can be affected by any small variant on process, equipment, etc. We need a platform for running fab-critical software. There is also the integration of software from other vendors. IT should be ready to integrate.
The key requirement is secure communications. You need to move toward a digital lithography ecosystem based on IT technologies and a single platform.
The IT pieces are there for the next node. Integration remains a challenge. Fab automation has some standards. Digital Twin is needed to calibrate the machines. The ASML digital platform provides integration, and is scalable. You also need to process the equipment and connection data.
John Behnke, GM, FPS Product Line, Inficon, kicked off day 3 of the SEMI Technology Week, that was on the future fab. He spoke about the evolution of smart manufacturing — integrated and collaborative smart systems.
The semiconductor industry has been on the forefront of developing advanced technologies used to fuel innovation and accelerate technology development since its inception. Its understanding and access to advanced technologies, coupled with its need to continuously improve manufacturing efficiency and customer satisfaction has pushed the industry to develop and adopt semiconductor-specific Smart Manufacturing/Industry 4.0 methodologies.
These Smart/I4.0 methodologies are heavily integrated solutions, which enhance the existing systems and capabilities. Data from these multiple systems, such as MES, yield, metrology, fault detection, process control, maintenance, and demand, integrate to create a real-time digital representation of the factory.
Smart manufacturing is based on three pillars. These are sensing, connecting, and predicting. Sensing involves the integrated real-time tool, process, and WIP monitoring. Connecting involves uniting the different and unique data sources. Predicting involves the Digital Twin-enable predictive apps.
Inficon offers FPS Smart solutions, such as Digital Twin, Factory Dashboard, Factory Scheduling, NextMove VTS, and Metrology Sampling Optimizer. Digital Twin enables the integrated apps. It is a never-ending journey of increasing the complexity and adding more information. It is the repository of everything about your digital factory.
The window to the Digital Twin real-time factory visualization is needed. Users are aligned to the immediate fab needs. There are integrated analysis tools, so you can set, track and shift the output goals. You can do historical performance charting, maintenance tracking/planning, and line linearity views. Schedulers pick the best lot for the best tool at the best time, and feed this information to lot delivery systems. This ensures factory-wide performance optimization.
Inficon’s NextMove Vision Tracking System (VTS) tracks the smart WIP movement. Dispatched material needs to be moved as per the schedule. There is integration with FabGuard to allow for SECS equipment set up. He showed some dashboard and scheduling-enabled RoI examples.
Day 2 of the SEMI Technology Week focused on materials. Rolf Aschenbrenner, Fraunhofer IZM, presented on heterogenous integration as the key enabler for electronic systems.
There has been a diversification of semiconductor products. There is no single leading driver. Instead, we have had a fragmented growing market. Diversification has been in terms of IoT infrastructure with connectivity and data processing as the backbone, IoT, AR/VR, AI, automotive, 5G connectivity, and servers/data centers. There is growth of high-performance computing, edge computing, and embedded IoT computing, using smart sensors, localized networks, etc. There is the heterogenous integration platform for doing all of this.
Heterogenous integration refers to the assembly and packaging of multiple separately manufactured components into a higher-level assembly that, in the aggregate, provide enhanced functions and improved operating characteristics. Higher-level assembly includes homogenously integrated SoCs, SiPs, or MCMs. This involves system design, algorithms, and software.
The packaging toolbox provides the characteristics for the different use cases. The toolbox has functions for interconnecting, materials, architecture, etc. For the SiP packaging toolbox, there are the new embedded technology that interconnect via electroplating. Thin active chips are embedded into the di-electric layers. Passive components are also embedded with the chips, as are SMD components.
Challenges include the remaining di-electric thickness has been decreasing, as are the multi-material challenges. Multiple additional functions also emerge for SiP packaging toolbox. Cost is an important issue, as are customer requirements, testing, assembly, co-design, and standardization. It is important to remember that all package materials will continue to change over the next 10 years.
Compact SiP requires material knowhow, along with understanding failure. There are also plating challenges, thermal and mechanical issues, corrosion, electrical, and new semiconductor materials, such as SiC, GaN, and new Ga2O3.
Heterogenous integration drives the interconnect density. We have developed a consortium to understand the challenges of panel-level packaging. These include Amkor, Dupont, AT&S, Hitachi Chemical, Ajinomoto, Evatec, ASM, RENA, etc. Warpage and die-shift control provide process understanding that enables high-precision RDL layers (or, dielectric layers).
5G MENA Digital Symposium 2021 commenced today. There was a session on secrets to the deployment of nationwide, flexible and robust 5G networks. Masum Mir, VP and GM, Cable and Mobile Business Unit, Cisco, said that 5G brings a world of new opportunities.
There are use cases in connected cars, Industry 4.0, venues, smart cities, smart meters, smart energy, etc. You require redefined security and experience, full-stack automation, and programmable platform.
There are learnings and insights for success. These include coverage planning, distributed architecture, cloud operations, and service transition from 4G to 5G. You need to plan beyond coverage and connectivity, and embrace continuous integration (CI) and continuous development (CD) and skill transformation.
Cisco’s 5G innovation provides simplicity at scale for mobile subscribers, mobile IoT, and nationwide 5G IoT and consumer deployments.
There was a panel discussion on consumer 5G: from devices to FWA and beyond. The participants were Patryk Debicki, Field CTO, Guavus, Amar Padmanabhan, Software Engineer, Facebook Connectivity, and Hani Mohammad Yassin, Senior Director/Technology Strategy, Etisalat Group. Gabriel Mohr, Principal, Arthur D. Little, was the moderator.
Amar Padmanabhan, Facebook, said they are working on network-intensive solutions. They are working with Oculus on the AR side. These are technologies that require fundamental shift from 4G devices. A bulk of social interactions are moving to the digital world. Experiences are going to get richer, as we go forward. They will need new network architectures, powered by 5G.
Hani Mohammad Yassin, Etisalat, added that 5G consumer proposition is a challenge. Operators are experimenting how to present 5G to consumer markets. In GCC, we have had success on 4G networks. 5G devices are still expensive. We are offering higher data bundles for 5G. There is also 5G access fee charge from some operators. 5G-specific content will be main driver for consumers.
Patryk Debicki, Guavus, added that gaming devices are expensive today. In 5G, there will be mobile edge computing. That means, gaming devices can become cheaper. Mobile edge compute will need to handle the gaming compute. 3GPP addressed the network analytics function that predicts the consumer’s mobility. It allows preparing content for the customer.
Yassin noted that the younger generation is getting social interactions online. Everything is on demand. Media can be a key monetization lever for 5G.
Debicki added that media is an interesting entity. With 5G, media can be taken to another level. Customers can be provided with specific QoS. 5G allows you to allocate the QoS. It can also analyze the QoS. You can charge only if the level is above a certain value. 5G addresses the access management in a great way. It will allow operators to differentiate on tariffs, depending on consumer behavior. The network becomes an engine for gaming. 5G will be about B2B models.
Padmanabhan said lot of monetization experiences come from sporting events. Delivering critical experiences means network changes in a fundamental way. We need some sort of data localization that is relevant to some campus.
In South Korea, MNOs have actually achieved growth in ARPUs. Yassin said that is a unique experience. The South Koreans have developed certain apps relevant for the local market. They applied those to the devices and networks. An integrated proposition is more suitable in this case. Apps with immersive experience will come over time.
Debicki noted that the variety of 5G devices will play a key role, and whether they support standalone or non-standalone. You need insights of the device capabilities. Yassin said there are lot of questions regarding 4G and 5G. Collaboration is very important among the different partners. We have still not at achieved the full potential of 5G yet. We are only scratching the tip of the iceberg as far as 5G capabilities are concerned.
Debicki said there are lot of metrics regarding smartphones. By 2025, operators will have more consumer IoT devices than smartphones. This is an area that will grow rapidly and overtake smartphones. Padmanabhan agreed there will be heterogeneity. There will be different devices, different access technologies, etc. The platform will need to be cloud-native, etc. There are lot of data center technologies that we are bringing into the open source world.
Here is part two of the SEMI Silicon Valley Chapter and SEMI Northeast Chapter conference on semiconductor outlook for 2021.
Dan Hutcheson, CEO, VLSI Research, presented on how the pandemic has turbocharged digitization. There are macro factors driving the semiconductor industry. Covid-19 closed one door and opened another. We have since gone from rainy situation to a sunny situation. The semiconductor industry had prepared the world for Covid-19. This year has started really strong. IC market growth has been slowing because of Covid-19.
This year, VLSI Research’s forecast for semiconductor equipment industry is about 20 percent. Zooming in on critical IC market segments, semiconductor sales growth should be +13 percent.
Focusing on IC market growth this week, the 13-week MA shows 2021 has kicked off on a strong growth path. Unlike the last 2 years, DRAM, NAND, auto, analog logic, and power are in a tight growth pattern – most recently ranging from +14 percent to +19 percent. In 2019, DRAM and NAND sung the blues after a hot 2018. 2020 was the year for auto ICs to be blue. With all the news of an auto IC shortage, this market is clearly hot. The auto IC sales are forecast to grow 21 percent. Seeds of auto IC shortage in 2020 were sown in poor supply chain management.
DRAM is very data-driven and forecast to grow 21 percent. NAND IC sales is forecast to grow 15 percent, as well. Analog IC and power discrete sales is forecast to grow 12 percent. Logic IC sales is forecast to grow 10 percent.
IC supply/demand trends
Looking at the IC supply/demand trends, IC wafer fab production levels continued to rise last week at ~20 percent above 2020 levels, with production levels above 2M 300mm equivalents per week. Supply/demand status held tight for the week. DRAM jumped, NAND and IDM tightened, while foundry, OSAT, and analog and power loosened. The 1Q nowcast is tight
In semiconductor utilization, all sectors are high. These include wafer fab, test, and packaging. Electronics’ prices are also declining. These include TVs, PCs, notebooks, tablets smartphones, cell phones, digital cameras, appliances, etc.
Looking at semiconductor inventory, the inventory-to-billings ratio is in an expansionary range, and ~0.25 below critical levels. Total IC inventories are in decline, suggesting high fear levels at the start of 2021.
Semiconductor/semiconductor capital equipment 2021 outlook
Harlan Sur, Executive Director, JP Morgan, presented semiconductor/semiconductor capital equipment 2021 outlook and long-term trends. Semiconductors/semicap stocks have outperformed the market over the last 1, 3, 5, 10 years.
Drivers of the strong stock performance include the realization that semiconductors are the foundational building block for all innovation in the technology sector — applications/devices/appliances are getting more intelligent and requiring higher levels of semiconductor $ content. There is lower cyclicality in the industry driven by end-market diversification and disciplined supply growth. Lower cyclicality drives more focus on profitability and free cash flow expansion, leading to strong capital return to shareholders.
Industry consolidation (M&A) is expected to drive diversification, R&D scale, and enhanced profitability and capital returns. Near-term, there is positive Y/Y inflection in semiconductor company revenues in 2H20, and expectations of industry growth through 2021. We expect long-term positive fundamental trends to continue going forward. Semiconductors have been in more stable growth phase. There is focus on market leadership, strong product cycles, margin/free cash flow expansion, and capital allocation.
End-market diversification and lower industry cyclicality drives more focus on profitability and cash flow. As operating margins and free cash flow margins have expanded, companies put in place strong capital return programs, driving higher valuation multiples. Industry consolidation has driven valuation multiples higher over time.
Semiconductors/semicaps growth and cyclical trends remain positive entering 2021 and beyond. We believe the semiconductor industry has entered a more stable and less cyclical growth phase characterized by low- to mid-single-digit annual revenue growth and high-single-digit unit growth. With the industry generally driving high-single-digit Y/Y unit growth, the entire value chain is able to better predict silicon consumption requirements, better respond to perturbations in supply/demand, and more efficiently plan manufacturing output. As a result, volatility in semiconductor supply/demand and semiconductor equipment spending has muted significantly.
Compare this to 15-20 years ago, when unit growth rates were +15 percent Y/Y – small perturbations in supply/demand would drive significant swings in inventory, shipments, capacity planning, and equipment spending. Bottom line: The current environment is likely more stable and less cyclical for semiconductor and semiconductor capital equipment suppliers. In a maturing industry, we believe the market will focus on market leadership/scale, operating margin and free cash flow margin expansion, and increasing payout ratios.
We see the semiconductor industry revenue up 10-12 percent Y/Y (bias upward) in 2021, following a 7 percent Y/Y growth in 2020. If you recall, the 2H20 demand picked up significantly and growth turned positive after 1H20’s weak demand environment and supply chain disruptions (Covid-19). In semiconductor equipment, we see spending up ~16 percent Y/Y in 2021 led by DRAM and foundry strength.
As for supply constraints across all end markets, we see multiple quarters of strength for the semiconductor suppliers. Channel/customer inventories are at/near historic lows, and lead times are continuing to get stretched out. Given the strong demand environment combined with supply tightness, we anticipate strong demand trends through 2021.
We expect continued industry consolidation (M&A). There is focus on scale, diversification, and margin and FCF expansion. There is promising outlook for foundry/memory in 2021, with demand and capex spending driving strong semiconductor equipment fundamentals. Potential investment in US domestic manufacturing capability is a positive, with innovation and assurance of the supply base.
Industry consolidation should also support valuations. We can expect more M&As to happen. Semiconductors are consolidating focus on building scale and driving profitability improvements, End-market diversification, etc. Consolidation should drive more stable revenue growth and improve margins. Less competition leads to less pricing pressure. There will be more market leadership and diversity. In 2015-2018 have seen $100 billion+ per year in M&A deal activity vs. the $20-30 billion run-rate prior to this time period.
M&As are characterized by big getting bigger. Going forward, we expect to start seeing a lot more M&A activity with the smaller/medium-sized companies, as there is pressure to drive scale to compete with much bigger competitors.
Data center fundamentals strong
Strong data center fundamentals, led by cloud service provider (CSP) spending are driving strong demand for compute, networking, and memory/storage semiconductors.
Look for companies levered to data center trends to outperform in 2021 across compute, networking, and storage/memory after digestion cycle in 2H20. CSP spending (top 4) grew by 10 percent in 2020 and was up 6 percent in 2019. We expect cloud spending to reaccelerate in 1H21 and grow 25percent+ in 2021, and at 10-15 percent CAGR over the next few years.
Cloud services revenues continue growing >40 percent + Y/Y. Over the next 5 years, CIOs should grow spending on public cloud by 4x. Early ramp of new processors by Intel, AMD, Nvidia, and ARM will see adopters. Silicon switch ports (>25Gbps) should grow 23 percent CAGR. DRAM memory content in a cloud server is 50 percent higher than traditional enterprise server – OW MU. Data center compute acceleration is growing >25 percent CAGR, driven by higher complexity workloads (AI/Deep Learning, analytics, etc.).
Resurgent custom chips
Custom chip (ASIC) market is experiencing a resurgence in activity as large OEMS, cloud, and hyperscalers look to differentiate at the silicon level — $10-$12 billion silicon market opportunity. Demand is rising for custom ASICs as many large OEMs/CSPs/hyperscalers are looking for more differentiation, better performance, lower power consumption and overall lower cost of ownership versus off-the-shelf chip solutions (or ASSPs).
These same customers do not have the capabilities to do large complex SoC) designs, nor do they have the broad IP portfolio of on-chip design blocks, like high-speed SERDES capabilities or high-speed memory interface technology. They need to engage with semiconductor companies (ASIC companies) that have the IP and chip design expertise (Broadcom, Marvell, Intel, MediaTek as examples).
The digital custom ASIC chip market is a ~$10-$12 billion per year market opportunity. These include cloud/hyperscale ASICS (AI processors, smartNICs, security/video processors, networking/storage acceleration). Telco/service provider equipment OEMs also see growth, for 5G base station modems, 5G digital front ends, 5G MIMO/beamforming DSPs, and coherent DSPs for long haul/metro.
There are 5G opportunities too. These benefit wireless infrastructure and wireless RF smartphone market leaders. 5G base station deployments are growing by more than 22 percent CAGR (2020-2023E). 5G base station estimates are growing from 2020’s ~800k to 2023’s ~1400k. We expect North America activity to pick up in second half of the year followed by Europe in 2022.
Digital semiconductors are growing from ~$3 billion in 2020 to ~$4 billion in 2023. Analog semiconductors will grow from $0.8 billion in 2020 to $1.1-$1.2 billion in 2023. This is a positive for players like Broadcom, Marvell, Intel, Analog Devices, Xilinx, Qorvo, NXP, etc. Massive MIMO/Beamforming are key enablers of 5G sub-6 GHz and mmWave to increase network capacity, data rates with better energy efficiency and TCO. GaN opportunity scales with number of antenna elements. GaN market will grow from ~$350 million in 2020E to ~$550 million in 2023E (15-20 percent CAGR).
5G smartphone complexity benefits the RF market leaders such as Qorvo, Skyworks, Broadcom, etc. The market is growing at 10-12 percent CAGR (2019-2022E). 5G smartphone estimates are growing from 2020’s 225 million to 2022’s 725 million. Ramp of 5G to meaningfully increase RF market opportunity primarily on new sub-6 GHz content, millimeter wave, are also additive over the next few years. There will be ~$5-$7 of incremental 5G sub-6 GHz content. This is positive for Qorvo, Skyworks, Broadcom, etc. Core base component expertise will grow, across PAs, switches, premium filters, etc. It is difficult to insource with lack of foundry model/merchant filter vendors.
Demand growth has been accelerating in memory. Pricing should improve meaningfully in DRAM in early 2021, while price declines in NAND are still moderate. Bit demand in DRAM and NAND should accelerate in 2021. DRAM bit demand should increase to >20 percent with strong demand for server and mobile DRAM. The NAND bit demand should increase to ~40 percent led by SSDs and mobile devices.
There is supply tightness in DRAM, as a result of lower DRAM capex in past two years. It should lead to improved pricing and ASP increases in 2021. NAND market is still in oversupply. ASP declines are set to decelerate later in 2021.
Capital intensity has been increasing across the device types. This is a positive for semiconductor equipment. Increasing capex should drive bit growth for DRAM and NAND. NAND capital intensity for 12X layer should be >50 percent higher than 4X layer NAND. This will require increasing the capex to drive bit growth for DRAM and NAND. Capital intensity is also increasing for foundry/logic, even as EUV has begun ramping. There is 5nm capital intensity that is >50 percent higher than 14nm/16nm. Increasing capital intensity is positive for semiconductor equipment companies, as spending on equipment will likely have a higher floor and be less cyclical over the next several years.
Looking at the wafer fab equipment (WFE) forecast and key programs for semiconductor manufacturers in 2021, we estimate WFE spending is on track to increase by ~16 percent in 2021 to nearly $70 billion.
We expect memory to recover in 2021 led by DRAM on improving supply/demand fundamentals with foundry/logic spending sustainable. Key drivers include following muted memory WFE in 2020 that was held back on supply discipline, we expect memory spending to accelerate to double-digit percent in 2021 led by DRAM. We expect continued foundry/logic spending strength in 2021. This will be broad-based across leading and lagging edge technologies. China spending should remain strong in 2021 as local manufacturers come up the learning curve.
Kris Szaniawski, Practice Leader, Service Provider Transformation, Omdia, presented the 2021 trends for telecom operations and IT, at the ongoing Omdia’s Future Vision conference.
First, there are plenty of telecom IT opportunities despite Covid-19. The crisis has impacted service provider spending plans, but technology never sleeps, and several key areas of telecoms IT will demand attention in 2021. The overall telecom IT vendor revenue is expected to grow by 2.3 percent in 2021—a welcome improvement on this year’s anticipated 0.6 percent decline—although still below the 4 percent CAGR for the period to 2025.
However, despite the overall sluggishness, there will be strong areas of growth, especially around anything to do with AI-driven network automation, data management, and monetization. Automating the increasingly complex network and service management environment has become a major priority for CSPs, along with the AI and data management capabilities required to support this.
Service providers also need to invest in customer engagement solutions to digitize and unify the customer experience, and the 5G monetization tools required to support a wide range of new services and business models. And, underlying it all is the continuing shift to the cloud, and the need to adopt cloud-native technologies and practices.
Telecom IT will see several strong areas of growth. AI and customer engagement will see a strong increase in investment in 2021, as well as areas such as network and data management and monetization. 58 percent of service providers are expected to increase spend on AI tools in 2021. And, 53 percent of service providers are to increase spend on customer engagement systems in 2021.
There is growing service provider appetite for cloud and cloud-native telecom IT. Underpinning everything is the continuing shift to the cloud and the need to adopt cloud-native technologies and practices. Whichever cloud migration approach you choose, it is unlikely to go well without embracing Agile operating principles to support it.
AI investment finally starts to catch up with the hype. Automating the increasingly complex network and service management environment has become a major priority for service providers, along with the AI and data management capabilities required to support this shift.
Customer engagement resurgence is driven by Covid-19. Service providers are already under pressure to automate and digitize customer engagement, but this will not be sufficient if they do not also invest in the IT tools capable of supporting a consistent and unified customer engagement strategy.
5G monetization remains a priority. 5G monetization will continue to be prioritized. Service providers need the tools to support a wide range of new services and business models. This will require not just 5G-ready policy and charging systems, but also a broad mix of customer and partner management capabilities.
Recommendations for SPs and vendors
There were some recommendations for service providers and vendors.
Service providers need to start trialling, testing, and implementing Agile practices across the organization so that they are well prepared for their cloud migration. CSPs also need to take stock of and fill any gaps in in-house capabilities and IT skills.
Service providers need to look beyond performance, monitoring AI use cases. Utilizing AI to perform closed loop automation presents a much bigger opportunity to transform RAN and core operations into something more proactive.
Service providers should seek to convert the short-term shift to digital interaction into a permanent change in customer engagement. However, at the same time, they need to develop a consistent and unified customer engagement strategy and invest in solutions that allow them to deliver a consistent omnichannel experience.
Service providers need to invest in new 5G-ready policy and convergent charging systems if they have not already done so. Most 5G monetization solutions will need to include charging and policy capabilities and service providers need to also consider additional features such as customer management, partner management, product catalog, and analytics.
Vendors will need to provide CSPs with hands-on support to help them embrace Agile and DevOps principles and transform development practices. Vendors will need to provide strong training and support and offer easy-to-use tools to help close gaps in in-house IT expertise.
Vendors cannot focus on AI capabilities in isolation. They need to address the associated areas, including improving data management and embracing open APIs to enable CSPs to access and make effective use of data, as well as support a common analytics platform to help CSPs streamline analytics workflows.
Vendors should ensure that their customer engagement solutions provide a unified view across the customer journey. They should also be able to orchestrate the customer experience across any channel, business function or department.
Vendors will need to assist service providers with 5G monetization use cases. 5G will be characterized by complex B2C, B2B, and B2B2X business models, which will necessitate fast and flexible monetization systems. However, such flexibility will not be sufficient by itself; vendors will need to provide guidance with 5G monetization use cases and be prepared to codevelop such use cases with CSPs.
SP appetite growing
There will be growing service provider appetite for cloud and cloud-native telecom IT.
The shift to the cloud continues apace. We have now reached the point where in any given domain, 78 percent of service providers intend to primarily host their telecoms IT systems in the cloud, although of course systems do not equate to workload. The proportion of the workload in the cloud may still be relatively low, but there is clearly momentum.
By contrast, the adoption of cloud-native technologies has been slower. To get the most out of the cloud, applications should be cloud native. But, over the coming year, CSPs still intend to run a large proportion of telecoms IT systems on legacy monoliths, and on average only 29 percent intend to embrace microservices architectures in any given domain.
Nevertheless, there are encouraging signs of change. Omdia’s ICT Enterprise Insights 2020/21 survey shows that nearly 80 percent of CSPs believe that migrating IT systems to microservices-based architectures will be an “important” or “very important” project in 2021.
This growing interest in microservices and cloud-native IT needs to be accompanied by adoption of Agile, DevOps, and CI/CD practices if CSPs are to obtain the full benefits. Service provider interest in these is also growing, but they face a steep learning curve.
CSPs will also need support to establish Agile, DevOps, and CI/CD practices.
AI investment finally starts to catch up with the hype. AI investment is turning into a service provider priority
Telecom AI has been much hyped, but it is only now that investment is starting to pick up, as service providers realise they need the automation tools, data analytics functions, and intelligence to support 5G network management, slicing, private mobile networks, and new business models. Covid-19 is also making it more of a priority for CSPs to improve operational efficiencies.
Nearly 80 percent of CSPs see the use of AI/analytics to automate network activities as an “important” or “very important” IT project for 2021, with nearly 60 percent of CSPs planning to increase investment in AI tools.
Automating network and service management processes is considered the most important OSS project over the next 18 months, as CSPs start to edge towards
integrated solutions that can support closed-loop automation.
Top AI use cases are expected to include network fault prediction and prevention, automation of end-to-end life-cycle management, and the management of network slicing. The range of use cases is growing fast, and soon the Telefonica CTIO will not be alone in claiming “We are building a new operating model using AI capabilities.”
AI and analytics will also support a variety of non-network use cases, including, using AI to support new business models such as contextual offer management, as well as automating and personalizing customer engagement.
Customer engagement resurgence
Customer engagement resurgence is being driven by Covid-19.
Service providers are already under pressure to automate and digitize customer engagement. The Covid-19 pandemic has brought major changes to the customer engagement environment as a result of retail outlet and contact center closures and a sudden shift to digital and remote working operations.
This has led to a resurgence of CSP investment in customer engagement tools. Over 80 percent of CSPs see end-to-end customer engagement solutions as an “important” or “very important” IT project for 2021, and almost as many plan to upgrade their customer engagement solutions over the coming year.
Furthermore, CSPs plan to incorporate AI and advanced analytics capabilities into their customer engagement strategies. Top AI investments include automating and personalizing customer engagements and deflecting calls from call centers (e.g., with chatbots).
Investment in customer engagement will not be limited to the B2C side of the business, as the top IT projects to improve B2B operations will focus on improving customer engagement for enterprise customers and enterprise end-users. Investments will include improving self-service portal capabilities and evolving self-service channels into new areas.
Customer engagement definitely needs to be more than just digital catchup.
Finally, 5G monetization remains a investment priority. 5G investment has not been derailed despite the impact of Covid-19. Omdia expects 5G RAN investments to surpass LTE by the end of 2021, and although total global market may peak in 2022 as initial China 5G rollouts finish, 5G as whole will continue to grow. This will of course drive the need for 5G monetization solutions. This fits with the longer-term pattern, with BSS revenue forecast to grow at a CAGR of 3.6% over the period to 2025.
CSPs will continue to invest in the BSS domain over the coming year in order to improve their ability to support network slicing, private mobile networks, IoT use cases, and the flexible pricing required to support new business models.
So, it’s no surprise that the two top BSS investment priorities over the coming year are upgrading billing systems to support new business models and investing in 5G-compatible rating and charging systems. Improving self-service capabilities and migrating revenue management systems to the cloud will also be important.
The feedback we have had from CSPs suggests that although billing is a current priority, and we will see increasing interest in 5G policy control (PCF) and 5G convergent charging (CHF), as well as increasing appetite to invest in integrating policy control and charging systems. The top two BSS priorities for 2021 are upgrading billing systems to support new business models, and investing in 5G-compatible rating and charging systems.
5G monetization is a more complex undertaking than many realize.
Omdia’s Future Vision conference kicked off today. Enrique Blanco, Global CTO, Telefonica spoke about the future vision for telecom operators.
Blanco said that we are going through the various interfaces and building a new 5G infrastructure. It is all about how you are managing this network. We are working on how we will manage the data lake. We believe that 2022 will be an extremely amazing year for telecom. We need to fully align the skills.
One of our most valuable assets is the data. We are now powering data for our customers. We are trying to build use cases as fast as possible. We have signed some partnerships with Google. How we can go together, and how we can grow faster? How can we use the capabilities of the interscalers? We are also working with AWS in Germany.
Five things that may surprise you
Evan Kirchheimer, VP, Service Provider Research, Omdia, presented five things that may surprise you in 2021.
We tend to think mobile-first, but fixed growth is delivering in the post-pandemic world. We are in recovery mode, and V is the shape. There are four takeaways. There will be 2.5 billion more connections by 2025, for fixed broadband and mobile connections (excl. M2M) by 2025. 5G is already growing the mobile data opportunity. In 2025, over 30 percent of mobile subscriptions will be for 5G (3.3 billion out of 10.9 billion). Mobile data revenues will rise from 62 percent of mobile revenues to 78 percent, delivering another $170 billion in annual mobile data revenues by 2025.
Mobile ARPU will also stabilize. In many countries (e.g., the UK), data revenues delivered by 5G subscriptions will arrest the decline in mobile ARPU. It will still slip slightly globally, with an ARPC of $74 in 2025 vs. $79 in 2020. But, fixed is a critical growth story: Mobile data revenues will enable all mobile revenues to grow 8.5 percent by 2025. But, fixed broadband will grow 14 percent between 2020 and 2025, to $370 billion. Fixed broadband ARPC will increase from $270 to $285.
Bridging the digital divide is more critical than ever for growing our opportunity. Achieving, or exceeding, this growth requires us to bridge the digital divide. Telcos will increasingly look for a purpose. Omdia’s Environmental, Social and Governance tracker reveals investment in a number of CSR initiatives focused on the environment, including green energy, recycling, conservation and green bonds. But, inclusivity trumps them! Social welfare and digital inclusion are, in combination, the top priorities.
Edge will further erode the distinction between the cloud and the network. Hyperscalers are working more strategically with telcos; how tight will these ties become? The network/cloud interplay becomes deeper. Partnerships with network providers are a large chunk of overall partner activities, and they are more strategic and less about commercial partnerships for specific services than they used to be.
Bypass or going direct is sometimes an option. Hyperscalers are, of course, injecting cash directly into subsea fiber, the edge, backhaul and various parts of the access network.
We are now locked in an edgy embrace. From a service provider point of view, some of these approaches are difficult to refuse: “pipe or nothing”; but hyperscalers need the telcos, because they must physically locate more and more cloud infrastructure in the network. Witness the growing number of hyperscaler-telco
alliances and consortia. Cloud, network, both, will be there. Investment patterns bear witness to the clout of the new kids on the block.
Next, Webscalers take the lead. In Q3 2020, Amazon’s CapEx was higher than China Mobile’s. Google’s was more than Verizon, and Microsoft more than DT. The “edge cloud” drives spend. While AT&T and Verizon are investing aggressively to launch nationwide wireless 5G services, the main aim of Capex across provider types is for building infrastructure for cloud computing.
There will be common things across the ‘splinternet’. China mirrors this trend, as their ICPs saw 3Q20 capex increase 21 percent to $7.9 billion. Tencent’s $5.9 billion rolling 12-month capex makes it comparable in size to China Unicom. Fixed capex dominates. For 7 of the last 8 quarters, fixed capex has exceeded mobile, though 5G network buildouts have caused mobile capital intensity to increase – a trend we expect to continue.
Value add! It’s time to radically rethink your strategies, or prepare to struggle for $0.40/month more. Value add capitalizing on growth of services above the network layer has proven challenging.
On the enterprise side, it has been stagnant. After years of trying, most telcos have failed to forge strategic relationships with large enterprise beyond connectivity. For disruption, aggregators, brokers and SD-WAN/Internet/work from home are disrupting even core managed WAN (though often on multi-year contracts). Re-orgs, with many providers have re-re-re organized their business arms. Witness BTGS, AT&T, TEF and T-Systems.
On the consumer side, household spend grows outside the core. Globally, the average household will spend only $0.4 more in 2024 compared to 2019 on core comms and connectivity. But, households will spend an average of $2.60 more in 2024 on online video, digital music, digital games and smart home services – about a 10 percent increase in spend. There will be struggle beyond Pay TV. With Pay TV flat at best, SPs are competing against behemoths in online video, digital gaming and smart home.
There are still, however, considerable opportunities in new approaches and old standbys. In private networks, our trackers and analysis reveals a complex ecosystem is evolving, and hardening. An alternative, multi-party approach is needed. Alternative service providers and multi-party deals for private network deployment have largely disintermediated the telcos. As for the ecosystem, there is real opportunity if providers view partnerships and ecosystem players as critical to a successful private network strategy.
Meanwhile, Covid-19 has re-ignited the mobile money market, with some long-standing operators realizing growth. Orange’s revenues in Africa and Middle East in 2020 were up 5.2 percent YoY, amounting to a considerable Euro 507 million.
The “emergency aid effect” of government financial support during Covid-19 increased the penetration of banking services in Brazil by 20 percent in a matter of weeks, reaching 90 percent of the adult population. And, 100 percent of this increase is mobile banking.
Digital inside out: The next few years will bring a significant digital skill shift inside the telco. CSPs are starting to embrace cloud-native, but there is a lot of work left to be done. 77 percent of CSPs plan to host a portion of their OSS/BSS workload in the cloud in 2021. Most CSPs (32 percent) will host OSS/BSS in a hybrid cloud environment. CSPs are likely to put the BSS in the cloud.
Now, 78 percent of CSPs plan to embrace microservices architectures for OSS/BSS in 2021. 75 percent of CSPs plan to embrace DevOps and other agile operating principles in 2021. However, 61 percent of CSPs say that lack of in-house experts is hindering their move to the cloud.
Telcos are now digitizing from the inside out. Our industry is beginning to understand digital is about people with skills and outlooks, not just technology. Over 21 percent of the openings at BT mention agile skills. At Colt and Swisscom, there is over 100 percent penetration of digital skills required.
In pre-2020, 5G will deliver the growth shot we have been waiting for. In 2021 and beyond, fixed is doing the heavy lifting, and the growing. 5G will require wholesale re-thinking of fixed architectures as core dissipates to edge. Have you prioritized your fixed architecture?
There was a robust CSR. Now, don’t lose sight of your fundamental business and social purpose – there is no market growth without access. Are you aggressively addressing the divide in your region?
In the emerging cloud/network landscape, it’s the edge that will shape applications for 5G. Digital is also about employee transformation: some telcos are well into their journeys. Do you have a digital people as well as technology strategy?