A Changing Landscape for the Computer Industry

A Changing Landscape for the Computer Industry
By John MacWilliams, Bishop & Associates Inc.

The computer industry is extremely broad, with many individual and other converging market segments. Standardization is limited at the package level, more so in components; some examples include USB, PCI, SATA, VGA, HDMI, DIMM, CPU, etc. But what we call computing equipment can actually fall into numerous hardware categories:

Computer equipment includes the following hardware:

Handheld PDAs, tablets, and e-readers
Smartphones, which are reported as telecom, but are “converged” computer/telecom devices
Netbooks, notebook PCs, and laptops
Desktop PCs and workstations
Printers, monitors, and other computer-connected peripherals
External HDDs and SSDs
Servers and mainframes
Scientific and super computers
Storage equipment and networks
Desktop networking equipment
Industrial single board and embedded computers
All other computer products

Historically, the market has been driven by personal computers of all types and by several enabling technologies (CPUs, memory, displays, and peripherals). It is a growth-cyclical market, amplifying increases or contractions at the component level because of inventory float. Its importance to the connector industry is huge, due to its billions of unit volume. Recently, there has been some slowing — caused by the recession, and, to some extent, a changing product mix. IDC projects 2Q11 world PC shipments increased 2.9%. This means the U.S. and EU sales declined: U.S. had -4.2% YOY growth (decline), EU and Japan are similar, and Asia had +12%. 2011 annual growth will be ~ 5% or less.

One important current dynamic is that demand has been shifting from maturing markets in the West to Asia, India, and South America. China’s PC growth in 2010 was +38.8% 1Q, +30.9% 2Q, +14.8% 3Q, and +19.2% 4Q (estimate from IDC). Intel reports relatively strong business activity, and is committing new high-tech factories in the U.S. and lower tech and packaging fabs in Asia. Intel’s thrust into Mobile Atom processors strengthens its lead in MPUs and further shifts its shipments to Asia, which now represents more than 60% of Intel’s business.

Areas of traditional growth in the computer and peripherals market — notebooks, desktops, printers, and servers — are challenged by new technologies, such as tablets and e-book systems, smartphone/computers, screen-printing, server virtualization, and cloud computing. Mobility is at the forefront.

Computer Industry OEMs
Computer industry consolidation was rampant in the last decade. It has now slowed. Oracle’s acquisition of Sun Microsystems may create a significantly new revitalized Sun in the server market. In addition, the server market is entering a new phase of software-driven applications such as virtualization and cloud computing. These technologies will impact the computer market going forward. Virtualization will reduce the number of servers needed in an installation, and may impact server unit growth. Cloud computing will shift applications from the PC to the cloud, and does require fast Internet connections.

Among companies in the computer industry, Intel, IBM, and Dell are doing okay. Apple is blowing their socks off. HP, which had displaced Dell as #1 in PCs, has seen some softness resulting from a consumer pullback, and perhaps, a shift to Apple computers. Apple has moved up to #4 in unit sales, is #1 in sales of PCs with ASPs greater than $1,000, is the iPad creator, and, of course, has a winner with the iPhone. The iPhone5 is nearing introduction, but is said to have encountered production problems due to its increased thinness. It is a challenge to cram all those electronics, LCD, and battery into a less-than-9mm-thick case. The current iPhone is 9.4mm thick.

Here are some dynamics among major players (Arrows signify current estimates of market share direction):

ä Intel: Key chip supplier who dictates much of computer architecture and standards
ä AMD: Challenging Intel in the CPU area to become a viable second source
á Apple, with its class-leading innovation and huge net worth; up 15% 2Q10-2011
à HP, with its broad product line and resources. Up 3% 2Q10-11, but down 0.6% in units.
ä IBM remains the leader in enterprise systems.
ä Dell, renewed focus on business servers and storage. Up 2.8% 2Q10-11, but down 10% in units.
ä Lenovo seems to have stabilized; focusing on China. Up 23% 2Q10-11
ä Asian Original Design Manufacturers (ODMs): Asus, Compal, Quanta, and others who design and build systems for OEMs

There are other suppliers of importance as well, some with rising stars, others in decline. And it should be noted that Apple’s ascendance cannot be underestimated as to its impact on others:

à Toshiba (notebooks): Still a factor in notebooks
å Sony (notebooks): Quiet, its style leadership has been taken by Apple
å Acer (notebooks): Up and down. Currently down 10% 2Q10-11 in sales, down 25% in units
ä Asus (netbooks): Recent entry in merchant market, targeting laptops. Up 6% 2Q10-11
ä Panasonic: Strong niche position in ruggedized notebooks (Toughbook)
ä Telecoms moving into computer space with tablet: Motorola, RIM, HTC, Viewsonic, others
ä Lurking giant: Samsung has entered notebook and tablet fray
ä EMS suppliers, notably the rapid rise of Foxconn: Foxconn just bought Cisco MX plant
ä Emerging suppliers in China who will benefit from a foreign-induced infrastructure build

Is the Personal Computer Market Facing Change?
Overall dollar growth in 2010 was only slightly better than 2009, about 5%, with 4-5% projected in 2011. Most growth is coming from emerging markets. Continued price pressure may squeeze profit margins via rising material costs. Netbook sales have dropped due to tablet and smartphone competition, and there are still lower prices on full-fledged notebooks.

Historically, notebooks have been the growth driver in PCs. But now, with hyper-growth in iPads, one wonders if and how much notebook/netbook growth will be truncated. Yes, iPads and notebooks are two different animals, but in the all-important consumer market, those differences get blurred. The iPad forecast for 2011 is 40 million units, 55-60 million in 2012. That is a very big number to be “all-new” demand; i.e., some of this demand comes from consumers purchasing tablets instead of traditional PCs. In addition, the iPad circuitry is different — it’s more highly integrated with systems-in-package, is much more display- and battery-centric, and has fewer I/O ports. It is quite possible that future iPads will add more notebook features, including external keyboards (already emerging), and will take advantage of mini/micro-USB/HDMI, DisplayPort, and other I/O ports now available, including device-specific USB docking ports.

Electronic packaging of the venerable PC-AT architecture is also changing — toward sleeker, notebook-like layouts. Again, the iMac was a forerunner of this, and now most suppliers have all-in-one desktop models with little headroom, and all surface-mount packaging — i.e. fewer, smaller internal connectors.

We expect to see one of these things happen:

Gradual evolution of the motherboard AT architecture to something smaller but still multi-vendor flexible
More integration in notebooks, with more sealed box designs
More abrupt, significant change in future PC architecture, driven by industry leaders or innovated by startups

Whatever happens will be caused by demand for ever-smaller, thinner packaging to support small desktop and mobile applications; and the next generation wireless technology that will truly enable computing anywhere. The “package” will most likely be sealed with the exception of batteries and I/O. I/O will allow daisy-chaining of devices, e.g. USB 3.0 or Thunderbolt. DRAM will be fixed > 8GB stacked package, CPUs will be more fixed BGA/logic board, and memory will be SSD Flash, with external HDDs, applications, and storage in the cloud.

As has been the previous track, these changes will take place over time. However, we may be approaching the next inflection point, brought on by the success of iPads (the last inflection was notebooks).

There is an interesting development with the Chromium PC from Xi3. This PC measures a bit more than four inches cubed, is composed of three small mainboards and a backplane. It is called a modular PC, and can be mounted to the back of an LCD monitor. It is said to be configurable to Windows, Linux, or the new Google Chrome OS with its AMD Athlon dual-core CPU. Its guts are streamlined, but upgradeable via the boards, and it has a small 16-64GB SATA SSD, bolstered by two SATA ports for external storage.

The point of showing this Chromium PC is that, perhaps it signals an overhaul of the venerable desktop PC. Making that change will go against the grain of the existing PC infrastructure. Behind this change could be Google and other companies who are constantly innovating new computer products.

Server Technologies:
X86 server technology, i.e. PC server architecture, has long impacted proprietary RISC/Unix server architecture on the basis of cost and the strength of Intel and Microsoft. However, IBM, HP, Oracle/Sun, and a few secondary players retain significant proprietary segments, led by IBM System Z mainframes and UNIX platforms. Super/scientific computers (government and institutional demand) did better in the downturn. However, with changes to X86 and off-the-shelf parallel systems have come less special designed-in componentry that formerly had significantly higher ASPs. There remain exceptions, including use of fiber optics, but the general trend is toward lower cost, more standardized components, where Intel has played a major role in order to increase volumes for their MPUs and chip sets.

The server market is split by several forces:

Low-cost volume server products, such as blade servers
Battle between UNIX/RISC and X86 platforms
Continued dominance of IBM in enterprise systems
Customer loyalty — resistance to change — mission-critical applications
Continued welling up of new suppliers from startups
Emergence of server virtualization and cloud computing
Questions about the future influence of China in the server/mainframe space

Volume server sales suffered the most during the downturn, dropping more than 30% year-over-year, but according to IDC, they rebounded 13% by early 2011. Non-x86 servers have outperformed for five consecutive quarters, according to IDC, with UNIX servers representing one-third of all server sales. IBM maintained their lead in enterprise servers, while HP lost some momentum.

Computer Peripherals
These products faced significant shrinkage due to the 2009 recession. Gartner Research reported a 20% drop in 1Q09 unit shipments of printers, copiers, and multi-function units, from 64.3 million units 1Q08 to 51.2 million units 1Q09. Some of this is the result of using cheap storage and LCD displays instead of paper. This will be a major concern for printers, copiers, etc., going forward, as the market continues to make the transition to paperless systems.

Generally speaking, the peripherals segment is dependent on PC hardware sales and innovations, such as wireless USB and USB 3.0. USB 3.0 is in its infancy, but should be a winner as its costs come down to 2.0 levels and its interoperability with 2.0. Thunderbolt I/O poses a question for USB. (See this previous article from Connector Supplier for an in-depth look at this new interconnect technology being driven by Intel and Apple.)

Connector Content Trends to Watch
Computers and peripherals is a very large connector market (#2 behind automotive), with more and more applications following industry standards. Previous examples are USB, SATA, PCI Express, LGA, HDMI, etc.

Notebook connector volume was key to the success of the PC market, but may be affected by tablets, which can easily be converted with a keyboard attachment and used for non-serious computing.

LGA2011, Socket R to be released with Intel Sandy Bridge CPU 4Q11. LGA socket has 2011 contacts in BLGA package.
USB 3.0 @ 5Gbp/s, Thunderbolt @ 10Gb/s poses an interesting question for the next few years
Since Intel collaborated with Apple on Thunderbolt, will it provide same level of support for USB 3.0?
Will Thunderbolt be kept close to the vest or exploded out to other PC vendors?
DDR3-4 transition is still a few years off according to sources. But there are initial products out there (Samsung).
Elpida (NEC-Hitachi-Fujitsu) Through-Si Via (TSV) technology enables 8-12GB BGA DDR3 module with no DIMM socket
SSD costs are coming down to replace hard drives. The 64GB MacBook Air SSD (shown below) is one example
Wireless USB — Cable clutter on the desktop — not sure WUSB is solution
DisplayPort and/or Thunderbolt in PCs currently confined to Apple. Will this change?
HDMI in PCs for home entertainment system access
Larger 23” + LCD displays and interconnect
Semiconductor Technology has been the technology driver of the Industry: How will it continue with a slowing Moore’s Law approaching minimums?

One way is 3D packaging, i.e. stacked die and multichip IC packages. (See Elpida announcement above). 3D is already being used in some new systems (iPad). The SiP or SoP paradigm could be a game-changer for electronic packaging because 1) it can employ multiple-vendor chips and be designed and controlled by OEMs, and 2) has the potential to greatly shrink conventional packaging. The result could be a major impact on conventional motherboard packaging as we know it.
There is a lot of discussion about the future of CMOS/Si ICs as the technology approaches molecular geometries. Can silicon (Si) innovations continue in a geometry-limited era?
In the past, Dynamic Random Access Memory (DRAM) set the pace for successive generations of semiconductor technology. DRAM quadrupled its number of bits every three years, up until the mid-1990s. Chip technology is slowing as its density increases, and is conjectured to reach fab limits by the early 2020s. Between now and then emerging research devices will begin to appear.
The first of these is Intel’s 22nm Tri-gate transistor technology (shown at right), which Intel says will extend Moore’s Law well into the future and will be used in its next iteration of MPUs starting in 2012

Si-Driven Packaging/Interconnect Advances Will Change the Computer Market

Flash Memory SSD drives. This has already started, and will gain steam as prices drop. Impact on connectors should be positive, as more drives will be sold. In server space, HDD and SSD will coexist.
TSV technology could result in fewer DIMM sockets as DRAM modules reach 8 GBs and above. This technique will affect other memory applications to the extent that its cost can be justified.
Where will successively higher pin counts in LGA sockets end? Is there a viable option with BGA logic boards, or can “sectioned” LGA sockets continue to keep pace with CPU technology above 2000 contacts?
On-chip Optical Interconnect: This could greatly increase the use of fiber optics in computer systems in point-to-point serial applications. Intel has invested significant research in laser technology and may be closer to perfecting a “Lightpeak” or other design with 50Gb/s capability. (See photo right, or click here.)
The use of silicon processes to shrink conventional PCBs could be a game-changer for off-chip interconnects. We do not see this happening anytime soon, due to embedded PCB technology and its gradual density improvements — which are in sync with connector capability, but only to the extent that PCB lines fan out from 25-100mm or more to accept minimum connector densities of 200-300mm.
System-on-Chip: More accurately, at this time, “Subsystem-on-Chip.” This is shrinking systems and outboard discrete components. The iPad is one example. There will be many more. The connector industry lives off the volumes created by these new system products, even though, in some cases, the connector content goes down. In others, such as CMOS image sensors, new connector applications are created.
Intel has everything to gain from continuing Si-centric computing. They have the capability to innovate new system designs that are essentially Si-based. Intel may have several paradigm strategies in its portfolio that would change conventional packaging forever.
The semiconductor industry is now heavily entrenched in Asia. The future — in a global marketplace — is headed toward a landscape in which the majority of manufacturing is in Asia, with significant consequences for the domestic industry. It would seem that in the end game, local manufacturers will have the upper hand.
Changes in I/O connector use are gradual, with legacy connectors remaining. Apple was always quick to eliminate them. As the number of ports increase, OEMs are less likely to retain legacy ports. Examples may include DVI, VGA, RJ45, Firewire, etc. But on the increase, we’ll see more Thunderbolt/DisplayPort, and HDMI.

John MacWilliams
Senior Consultant and Analyst, Bishop & Associates Inc.
John MacWiIliams has been in the electronics industry for over 40 years. His main areas of experience have included: U.S. competitiveness programs, market research studies, authored articles, field sales and management, product marketing management, strategic marketing, new product planning, venture development, advertising and media relations, direct sales, manufacturers representative, distribution sales management, and international marketing. MacWilliams has worked with AMP, Diceon Electronics, TRW, and IRC in marketing management positions. Prior to joining Bishop & Associates, MacWilliams served as the group director of marketing and new product planning for AMP.

MacWilliams graduated from Lehigh University with degrees in business management and engineering.