Jeremiah 29:11

Chip-laden cars still opportunity for semiconductor companies


May 7, 2008

The automotive market would appear to be an attractive target for semiconductor manufacturers. The most recent figure I’ve heard, courtesy of Tektronix, is that semiconductors represent 25% of the cost of manufacturing a new car. And as EDN's Brian Dipert reports, “Talk to any semiconductor supplier's spokesperson, ask him or her what the company's most compelling future market growth opportunities are, and there's a pretty good chance [automotive electronics] will rise to the top of the list.”

But Brian is skeptical, for two reasons. He believes that luxury features like “a dash-mounted GPS with voice recognition and response, whose color touch-screen LCD also served to display the video feed coming from a rear-view camera, an integrated Bluetooth microphone-plus-speakerphone setup, separate climate control settings for driver and passengers, and a music system (albeit not surround sound) whose sonic purity I'd wager exceeds that of the gear in most folks' homes” won’t trickle down to mass-market automobiles, and he believes peak oil will cause people to seek alternatives to driving.

He writes, “News reports in recent weeks are filled with stories of folks drastically reducing the use of their vehicles, turning instead to public transit, to pedal power, or (hallelujah!) to telecommuting…. So if folks will be using their cars less often, and commuting less time per use on average, why would they want to load them up with lots of electronics gadgets?”

It’s true that some people seem to be seeking out alternatives to driving. But Brian himself seems to think that these aren’t the people who would be buying high-end cars. People driving a BMW, Cadillac, Infiniti, Jaguar, Land Rover, Lexus, Mercedes-Benz, Porsche, or Rolls-Royce simply aren’t sensitive to the price of gas—they will continue driving their gadget-laden automobiles. Luxury features may not trickle down, but the market for them is unlikely to shrink.

As for the mass-market auto customers who begin switching to alternative modes of transportation, it’s hard to imagine they will give up their cars entirely (although if they drive less, they may trade them in less often). And their cars will continue to need semiconductors for engine-control units, government-mandated safety features, and so on.

Certainly, the automotive market isn’t a panacea for chip makers, but it still seems to present significant opportunities. One bit of data I don’t have is, given that semiconductor content represents 25% of the cost of building a car, how much of that is for semiconductors that make a car act like a car (ECUs, airbag deployment systems, tire-pressure monitors, x-by-wire systems, and so on) and how much is for semiconductors that make a car seem like a home (stereo, phone, climate control, and so on). Any ideas?