Is the semiconductor industry able to reduce prices on its next generation of microchips?

As Moore’s Law begins to break down, chip makers risk making billion-dollar bets on next-generation technology with consequences for the entire electronics value chain.

The semiconductor industry has a problem with two four-letter words: cost and risk. After a couple of decades of boom-and-bust cycles, the industry settled into a period of modest yet relatively stable growth in the early part of this century. Driving the vast majority of the industry’s revenue was the personal computer, sales of which grew steadily year after year. More recently, however, the world’s ardor for PCs has cooled as consumers and businesses have gravitated to mobile devices, principally smartphones and tablet computers. The growth rates for smartphones and tablets, at least at the high end of those markets, are beginning to slow, as buyers shift to lower-priced products, especially in emerging markets, such as China. The problem for the semiconductor industry is that as the PC market has slumped, mobile devices aren’t taking their place as the profitable drivers of increasing chip sales.

In the midst of this product transition, the industry has an expensive and tricky juggling act – continuing to shrink the dimensions of semiconductors while reducing the manufacturing cost of those chips. Scaling, as this shrinking is called within the industry, proceeds apace, but the cost of scaling is becoming a significant concern. (See figure below.)

For nearly five decades, the semiconductor industry has conformed to the widely known and often misunderstood phenomenon known as Moore’s Law, which predicted that the number of transistors on a semiconductor device would double every year (later revised to every two years). Gordon Moore postulated the trend in 1965 while he was working at Fairchild Semiconductor; three years later he would become a co-founder of Intel. Moore also speculated that the cost of these multiplying transistors would continue to fall as their volume grew, a prediction that has generally held true for decades. Until now.

As the tiny features of microchips shrink to line widths of 28 nanometers, 20 nanometers, and even 14 nanometers, the cost of making these chips that contain billions of transistors continues to rise. (A strand of human DNA is about 2.5 nanometers in diameter and the width of a piece of paper is about 100,000 nanometers, according to the U.S. National Nanotechnology Initiative.) This breakdown of the cost-density relationship is a new wrinkle and a serious departure from what the industry has come to count on. Indeed, it threatens the financial viability of many chip companies, their material and equipment suppliers, as well as their customers. That’s the risk part of the problem.

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