Silicon Valley’s semiconductor industry retains dominant role

USA: There’s not much silicon left in the Silicon Valley these days, with most chip production having been transferred to other locales long ago. However, the Valley remains the world’s preferred location for semiconductor-supplier headquarters, with the region continuing to host the largest and most diverse group of chipmakers of all global electronics hot spots, according to iSuppli Corp.

The Silicon Valley's 56 semiconductor suppliers in 2006 collectively posted revenue of $68.2 billion, an increase of 5.8 percent compared to $64.5 billion in 2005. This lagged behind worldwide semiconductor growth of 9.6 percent in 2006. However, if the results of one company are excluded—Intel Corp.—the region’s semiconductor suppliers achieved revenue of $36.7 billion, up 26.4 percent from $29 billion in 2005, handily outperforming the worldwide average.

Semiconductor companies headquartered in the Silicon Valley accounted for 26.1 percent of global chip revenue in 2006. iSuppli estimates 25 percent of global semiconductor companies are headquartered in Silicon Valley, with 39 of these companies generating annual revenue of more than $100 million.

Conglomeration of diversification
The key factor behind the Valley’s continued semiconductor success is the diversity of the companies headquartered in the region, iSuppli believes.

"Silicon Valley chipmakers serve virtually every major application market in the global electronics industry,” said Dale Ford, vice president with iSuppli. “Although the region is heavily associated with the computer industry, with companies including Intel, Advanced Micro Devices Inc. and nVidia Corp., semiconductor suppliers in the region also have a strong presence in the consumer-electronics, wired-communications and industrial segments, which represent four of the six major markets for chips.”

This diversity is particularly apparent when Intel is removed from the equation, Ford added. If the PC microprocessor giant is excluded, the Valley’s semiconductor companies display a healthy balance of different markets served.

The diversity of the Valley itself bodes well for the semiconductor industry in the region, iSuppli believes. The region still attracts talented engineers and others from many businesses. This is because beyond electronics, there are other industries operating in the region, from energy to biomedical. On the downside, the region has a relatively small presence in mobile communications. Furthermore, the Valley’s chipmakers have only a very minor participation in the automotive market.

Staying ahead of the Hsinchus
Silicon Valley remains the largest region for semiconductor headquarters, despite the rise of other chip hot spots, most prominently Taiwan’s Hsinchu City. Hsinchu is the only region that comes close to Silicon Valley in terms of amount of semiconductor revenue, at $50.2 billion. However, the region lacks the Valley’s diversification, with Taiwan’s semiconductor industry heavily focused on foundry chip manufacturing.

A shell of an industry?
While many semiconductor companies have their headquarters located in Silicon Valley, they have moved most of their operations elsewhere. Semiconductor suppliers often locate their management and senior engineers in the Valley, while conducting production and design activities overseas or in other parts of the United States. However, the Valley remains a hotbed for semiconductor startups that play a key role in promoting industry innovation.

Much basic innovation still occurs in the Valley. For example, most new emerging memory technologies are being developed in the region, although actual production will occur in South Korean, Taiwanese and Japanese fabs.

So, while the Silicon Valley may not have much silicon these days, it still remains the center of the global chip industry.