Automotive and Other Embedded Systems will Help Drive Microprocessor Growth – James Carbone

While most microprocessors are used in computers, more MPUs are being designed into industrial equipment, including Internet of Things applications. The microprocessor market is not just about computers anymore.

Robust demand from servers, PCs and embedded applications will drive 9 per cent revenue growth in 2017 as sales rise from $49.6 billion in 2016 to $54.4 billion in 2017, according to IHS Markit.  Longer term, the global MPU market will post a compound annual growth rate of 4.7 per cent as revenue increases to $65.4 billion in 2020, the researcher said.

With healthy demand, buyers can expect prices to increase. The average price for a microprocessor in 2016 was $27.61. By 2021, the price will rise to $29.42, an annual average price increase of 1.6 per cent from 2016 through 2021, according to market research firm IC Insights. The average price also includes application processors used in cell phones and tablets.

“Lately MPU average selling prices have been creeping upward across in almost all categories,” said Rob Lineback, senior research analyst for IC Insights. “But on the embedded side you might see more of a decrease.”

He said the reason average selling prices for microprocessors are increasing is there is continuous addition of functions,” said. He said MPU manufacturers will be embedding artificial intelligence into microprocessors which will further increase the value of the chips and the price.

While higher prices help drive revenue growth for MPUs, underlying growth in demand from computer and embedded systems manufacturers remain the main reason for healthy growth.

Volume demand for microprocessors is still dominated by data processing equipment, including servers, desktops, mobile computers, mainframes and workstations. However, the growth rate of MPU use in embedded systems is higher than data processing equipment.

“In data processing, the microprocessor growth rate for 2017 is 9.1 per cent,” compared to 16.4 per cent for industrial applications, 11 per cent for wired communications and 13.6 per cent for automotive, said Tom Hackenberg, principal analyst, embedded processors for IHS Markit.

More opportunities

“The embedded space is offering a lot more opportunities for growth,” he said. However, data processing dominates the MPU market.

“The data processing category is over $43 billion in microprocessors where all these other categories are around 1.5 to $2 billion each. So, you can combine all these other categories and you’re not even up to a quarter of what data processing means to microprocessors,” said Hackenberg.

Within the data processing segment, there is been greater demand for MPUs in mobile computers rather than desktops.  In addition, more people are using tablets and smart phones, which use application processors

“This has had a big impact on the desktop computing market over the past several years,” said Hackenberg. It is also resulted in less MPU demand by desktop manufacturers.

“But what we’re finding now is the that trend has plateaued,” said Hackenberg. The growth rate for smart phones has slowed. In addition, there is a transition from tablets to PCs that are “transformable,” he said. Such computers have a tablet style form factor with PC performance because “there is MPU in the device,” said Hackenberg. He said the Microsoft Surface is an example.

The trend is “helping to bolster the mobile PC platforms,” he said.

In the cloud

Cloud computing may also be having on the computer market and on microprocessors. “We are seeing a considerable surge in the fixed PC market from mobile platforms,” said Hackenberg. “The transition from applications on your PC to cloud-based solutions and all of the services that are being pushed out on cloud platforms are making PCs a little more desirable,” said Hackenberg.

While computers still dominate the MPU market, Intel, AMD and other microprocessor factors are looking to embedded systems for further sales growth.

Hackenberg said computers are a mature market and growth has slowed. “Companies like Intel and AMD they have to have a long-term strategy for growth and there’s only a couple ways to achieve growth,” he said. MPU makers either have to grow the market and “somehow get people to buy more PCs or servers or they have to expand their product lines into other markets that have additional potential,” said Hackenberg. “That is what we are seeing over the last five years with the embedded market.”

Microprocessor makers are focusing more on industrial and home automation, digital signage, medical applications, automotive defense systems, consumer equipment, emerging Internet of Things applications among others.

“These are segments that may not be anywhere near the market size of the server and PC market but they represent opportunities for good growth,” he said.

Many microprocessors used in embedded applications are RISC processors rather than Intel’s x86 MPUs, although Intel is trying to become a bigger player in the embedded market.

Embedded rising

In 2016 embedded represent about 14 per cent of the microprocessor market and that percentage will grow to 19-20 per cent by 2021, according to IC Insights.  MPU use in embedded systems will rise at a compound annual growth rate of 12 per cent through 2021.

MPU use in automotive is growing and will continue to rise for years as more electronics systems become more sophisticated and require greater processing power.

Hackenberg said there are two evolutions occurring with vehicles which will impact MPU use in vehicles. Automakers are trying to make electronics systems in vehicles that have a customer interface similar to computers or smart phones.

“That means consumers expect to be able to look at a touch-screen environment and have the same comfort level that they have using the smart phone or tablet,” said Hackenberg. “They want to look at the heads-up display or the instrument cluster and see it graphically like they would expected to see a smart phone or tablet. That means higher performing microprocessors are needed, he said.

Hackenberg said under the hood, there is an evolution towards advanced driver assistance systems (ADAS). Such systems provide warning to hazards on the road such as vehicles changing lanes.

MPUs needed for self-driving car

But the trend is towards autonomous vehicles, which in theory would be self-driving, but in the short term, would involve cars that can park themselves or perhaps operate on automatic pilot when a motorist is driving on the highway.

“There won’t be self-driving cars in the next few years, but we will continue to progress in that direction,” said Hackenberg. Autonomous driving will help drive more microprocessor use in vehicles as such systems will require greater processing power.

Great processing power may inclusion of artificial intelligence technology into microprocessors.

“We’re in the beginning stages of it right now, but everyone is talking about embedding artificial intelligence into processors going forward,” said Lineback. “Right now, we are seeing machine learning which is a form of artificial intelligence.”

“Intel plans to use artificial intelligence in processors to “protects its microprocessor base.”

Intel acquired Nervan Systems, a startup that is developing AI technology. Intel plans to embed the technology into some of its processors.

Nervan’s chip technology is designed for “neural networks.” Neural networks are used in various tasks, such as computer vision, speech recognition, machine translation, social network filtering, medical diagnosis among other areas. Neural networks learn to do tasks by considering examples, generally without task-specific programming. For example, in image recognition, they might learn to identify images that contain cars by analyzing example images that have been labeled “car” and using the analytic results to cars in other images.

By The Numbers

9%: The percentage growth rate of the worldwide microprocessor market in 2017. Source: IHS Markit

65.4 billion: The forecast size of the microprocessor market in 2020. Source IHS Markit.

1.6% The expected average selling price increase for microprocessors through 2021. Source: IC Insights.

$43 billion: The size of the data processing equipment microprocessor segment. Source: IHS Markit.

14%: The percentage of microprocessors used in embedded systems.