Countdown to the Microwave Millennium
Trends characterizing today's European microwave market, including an emphasis on wireless sectors, a shift away from defense applications toward commercial markets, and increased consolidation
Countdown to the Microwave Millennium
If a seasoned observer of the European microwave and RF market was asked to describe the status of play of the major companies, the answer could be summarised in two words: stabilisation and consolidation. There seems to be little doubt that the current resurgence is pointing the microwave sector towards a millennium full of new prospects.
After several tumultuous years in the late 1980s and early 1990s, when the defence electronics sector experienced a global catharsis, the microwave sector is now firmly anchored in a phase of steady growth. For the first time in many years, European firms are now in a position to plan for the foreseeable future. This stabilized growth is more than can be said of many of the clients that microwave manufacturers supply — predominantly those in the telecoms industry where competition and deregulation are tearing apart long-established market structures and playing havoc with the destinies of even leading players.
However, at the microwave system and component level, companies face a more democratic environment that could potentially succeed regardless of the technology chosen. In the past, the majority of companies with high end RF and microwave interests have naturally been orientated strongly towards supplying the defence sector. More recently, these firms have needed to re-orientate towards the very different direction of civil systems. Marked differences exist in this commercial marketplace. In fact, it can be argued that military and defence sales hardly represent a marketplace as such; and so companies must, in many cases, learn completely new approaches to become successful in the new markets.
The basic product functions and specifications have altered fundamentally. For example, amplifiers are now required to have narrower bandwidths and operate over more limited temperature ranges. In addition, the actual markets themselves are completely different. Companies of all sizes are being affected by this sea of change in the industry.
Several major features distinguish today’s European microwave marketplace from one that was predominantly noncommercial and defence orientated. These features include the shift towards functionally complex MMIC and RFIC chipsets — the so-called complex function modules; emphasis on wireless sectors such as the Global System for Mobile communications (GSM), personal communications services, wireless local area networks (WLAN) and mobile satellite services (MSS); the potential impact of the sizable impending Intelligent Vehicle Highway System (IVHS) market; the continuing shift away from defence applications towards commercial markets; and increased consolidation in the industry (for instance, through mergers, demergers and acquisitions).
A Still-Active Defence
Figures 1 and 2 show that defence applications are expected to experience a growth rate of approximately three to four percent annually between 1995 and 2000. During the same period, mobile communications — which encompasses a major chunk of the wireless sector — will grow conservatively at an annual rate of nine percent. Each of the remaining categories will grow by an average of approximately seven percent per annum.
European defence markets are driven in part by NATO decisions and financial allocations, as shown in Figure 3 . However, despite the decline taking place in overall defence spending, the expenditure on communications, radars and electronic warfare (EW) systems — all heavy users of microwave technology — will remain relatively flat over the period up to 2000. Both radars and EW systems must be implemented on dedicated platforms, such as aircraft and ships. In these cases and in some army (land-based) systems, retrofitting of systems onto existing platforms is an increasingly important sector of the market due to the pressures imposed by defence cutbacks.
Applications and developments involving active phased-array radars will increase. These types of systems are implemented through the introduction of several thousand GaAs MMIC amplifiers/phase-shifting modules in a reliable and cost-effective manner not hitherto possible. Many new radars currently incorporate this technology to replace the traditional mechanically scanning systems.
For EW systems the emphasis will shift away from aggressive jamming approaches towards surveillance and detection activities. In all systems the software element will require an increased proportion of the effort and expenditure. This shift will lead to further rationalisation in the defence industry (particularly within Europe) although it will not be as substantial as during recent years.
High End Mobility
Mobile communications systems are expected to account for approximately 23 percent of the RF/microwave components market — easily the highest of all application sectors. In contrast to defence, relatively higher volume sales opportunities exist for many components sold into the handset side of this mobile communications sector. These volume markets will continue to grow over the foreseeable future.
In fact, Ericsson, the prominent Sweden-based mobile handset manufacturer, has recently revised its estimates of the global market for cellular services. It expects the market will involve approximately 830 million subscribers by 2003, up from its previous expectation of approximately 600 million. Considering that the current market accounts for slightly over 200 million subscribers, the growth patterns during the next five years should allow for a substantial global market for components such as surface acoustic wave filters. However, this market increase will not produce a proportional increase in revenue for suppliers of such components because market values will be offset, to some extent, by steadily falling unit prices.
The growth in the demand for handsets (for all types of terrestrial digital systems) ensures sustained growth in high end RF/microwave components. These markets will be worth approximately US$330 M per annum over the next few years. The associated chipsets, both silicon and GaAs, will see a unit price decline from the present US$60 median to approximately US$37 before 2000.
The MSS market in Europe also is expected to experience considerable growth. A number of systems are planned worldwide but even if, for example, only three or four of the projected MSS programs actually get off the ground, a substantial and growing market still will exist through and well beyond 2000. In fact, all existing and planned mobile communications systems use entirely solid-state components, including RF/microwave components.
The Wired and the Wireless
Driven by standards such as HIPERLAN and IEEE802.12, WLANs are expected to enter service in large numbers. However, the market levels so far have been disappointing. It is anticipated that the operating advantages of WLAN will become evident over the next few years and information systems managers will notice the benefits of implementing them. Therefore, WLAN can still look forward to a period of growth, and the main national markets will be in France, Germany, Italy, Spain and the UK.
RF/microwave-based fixed communications systems include terrestrial line-of-sight links (including spurs), some community antenna television (CATV) systems, fibre-optic systems with RF/microwave carriers, satellite TV (direct broadcast services (DBS)), new and forthcoming satellite systems with an impact on European markets and very small aperture terminals (VSAT). This entire sector of fixed communications accounts for approximately 20 percent of the total market for RF/microwave components. In Europe and most developed countries, the market for conventional terrestrial microwave links is now mature (although some new services and frequency allocations are being provided in many instances) and digital transmission is being adopted almost universally.
The use of fibre optics for telecoms networks is increasing substantially in Europe and worldwide. This medium has the advantages of potential high capacity and relative ease of expanded migration to new services and transmission protocols such as synchronous digital hierarchy. The higher levels in this type of hierarchy operate at bit rates in the vicinity of 2.5 Gbps and extend to 10 Gbps, meaning that RF/microwave technology is required in the transceivers. Therefore, it is important to appreciate that microwave technology is now firmly established commercially within fibre-optic systems.
Fibre deployment in Europe has been boosted by the continent-wide deregulation that went into effect in January. Companies ranging from electricity utilities to railway operators are now entering the telecoms market with formidable plans to roll out fibre. In addition, operators like Ionica in the UK with innovative fixed radio access systems now exist. Ionica’s fixed radio links operate in the 3425 to 3490 MHz band and provide both voice and data transmission. In a similar manner to cellular networks, but without the added problem of mobility and corresponding Doppler shift, the Ionica networks offer transceivers and switching base stations. Microwave spurs are generally employed for connections to subscribers’ premises for economic reasons and to provide flexibility.
The Television Revolution
Many of the new telecoms operators are also offering TV transmissions using systems that are capable of multiband transmissions — up to 50 or more TV channels — and, therefore, are suitable for CATV. These CATV networks are implemented predominantly with multimode fibre-optic transmission systems, and carriers at 800 MHz or higher are common. In addition, CATV is stimulating the development of satellite master antenna systems (SMATV), which use microwave carriers. As satellite systems continue to advance, types and applications are expanding. In the past, these systems have provided a springboard for the commercial debut of certain key RF and microwave components, such as GaAs receiver chips. Low noise amplifiers have evolved into single-chip (or at least chipset), low noise block downconverters for these applications.
Satellite TV continues to represent an important market segment, with extent and growth varying considerably in different European countries. Despite new developments like digital TV transmission and high definition TV, there seems to be an overall tendency towards market saturation in the late 1990s. Although already well-served markets will remain promising in Western Europe, the prospect exists of substantially expanding markets in countries such as Spain. Poland, for instance, has taken particularly well to this service and easily has become the largest market in Eastern Europe and fourth in all of Europe (tying with Denmark and Sweden).
Opportunities also exist in Italy, which has notably low market take-up amongst the economically larger countries. These opportunities can be traced to the fact that SMATV (and, therefore, transmission to apartment blocks rather than individual homes) is particularly popular in Italy, the nature of programming control has not been conducive to DBS and, finally, signals from the Astra satellite constellation — Europe’s main broadcast satellite system — are relatively weak in much of the country.
Many other satellite systems are of considerable importance, including VSATs, earth resources satellites, civil radars and the Global Positioning Satellite (GPS) supply market. Search-and-rescue transponders for marine applications are also a significant development. Security, telemetry, industrial, instrumentation, medical and research sectors also contain significant requirements and opportunities for microwave technology.
The Highway to the Mass Market
The European markets for civil radars, whether land based, aeronautical or marine, are relatively small. Therefore, the market for microwave components in this sector is correspondingly small, accounting for only approximately 7.9 percent of the current market. That number is expected to increase to only 8.2 percent by 2000. These relatively low proportions are due to the limited market for air traffic control systems together with their slow replacement, as well as the restricted opportunities for marine surveillance applications (largely in the Baltic, English Channel and Gibraltar regions).
On the other hand, the continuous growth of road traffic and the consequent problems associated with heavily congested routes have accelerated the need for technology-based support systems. Electronics and communications are having an increasing impact on transportation systems. The generic term describing this field is road transport infomatics.
The European Community’s Drive and Prometheus programmes have been operating for 10 years now and are primarily aimed at improving road safety and optimising traffic flow using active route guidance techniques. These programmes have already created several important spin-offs, which will provide significant market opportunities for RF and microwave components. For example, Prometheus has included a project concerning collision-avoidance ground speed radars that operate at 77 GHz. (Cobra, an Italian manufacturer, offers these types of systems.) These IVHS systems use microwave signals to communicate with the vehicles and between highway gantry or verge-mounted transceivers. Central computers sort the signals and control and integrate the systems. GPS receivers also will be integrated with these systems so that navigational information can be blended in to enhance the quality of operations.
Discrete vs. Integrated
The total European market for RF and microwave components (worth US$1.8 B by the end of 1995) is expected to increase to US$2.5 B by 2000, as shown in Figures 4 and 5 . Overall, France leads in these markets for the entire period to 2000. This market is followed by the UK, Italy and Germany. It may seem unusual for Italy to lead Germany, but Italian industry includes a strong naval radar and other end-user sector. Combined, these four nations accounted for almost three-quarters of the total European market for RF/microwave components in 1995. At the other extreme, the smallest market segment is that for the rest of Europe (Austria, the Irish Republic, Portugal and Greece), accounting for approximately one percent of the total. The Eastern Europe group of nations account for two percent of Europe’s total market.
The important category of products classed as discrete semiconductors accounts for US$222 M of the European market, rising to just over US$300 M by 2000. In RF and microwave electronics, discrete semiconductors remain highly significant despite the growth in integrated technology. This category of components takes a steady 12 percent of the overall market.
These discrete devices are often implemented in hybrid MICs (increasingly alongside RFICs and MMICs) to provide special functions and to operate at frequencies still beyond the reach of state-of-the-art commercial monolithic ICs. Therefore, it is important to recognise that several of the other component categories involve discrete semiconductors to a certain extent, such as amplifiers and oscillators, complex function modules, control components (to some extent), and attenuators and filters (also to some limited extent). This category can be subdivided further into diodes, silicon transistors, GaAs FETs (or MESFETs), high electron mobility transistors and new devices, including SiGe transistors and heterojunction bipolar transistors.
An important trend exists towards the design and implementation of highly integrated modules that have functions beyond those of amplification, oscillation and switching, and a wide variety of chips and chipsets are currently being offered that combine several of these functions to form a subsystem in a compact module. Examples include chipsets for GSM and WLANs, vector modulators, various transceivers and frequency synthesisers. These combined-function modules will continue to attract unit prices in the high 10s to 100s of dollars range over the remainder of the decade. New entrants to the markets that provide acceptable and attractive extra features in various applications (such as interactive TV) will do so at higher unit prices and, subsequently, will fall in price as volumes increase. The total market for this wide-ranging class of components was US$473 M and is expected to increase to US$862 M in 2000, which is slightly over one-third of the overall European components total.
Solid-state alternatives and the decreasing power levels required in microwave systems generally mean that markets overall for tubes will continue their present decline. By 2000, the market will have fallen to US$162 M from US$214 M in 1995. Exceptions to this overall trend include some industrial, military and research applications. In addition, satellite applications, particularly ground station uplink amplifiers and for some of the satellites themselves, traveling-wave tubes remain important, ensuring some continued growth for this specific class of tubes. Historically, there has been an almost continuous improvement in the power frequency capabilities of solid-state (mainly semiconductor) microwave devices. This trend will continue to some extent but it is not without limit for individual semiconductors. Further capability improvements rely on attention to systems design and the implementation of multicomponent modules.
Although not one of the larger market sectors, connectors, coaxial cables and waveguides account for approximately 10 percent of the industry’s total revenue. In 2000, this market is expected to reach the US$250 M mark. However, conflicting factors influence the interconnect market. Virtually every microwave module or subsystem requires at least one connector — sometimes several. Set against this need is the fact that increasing integration and miniaturisation are reducing the extent of interconnection necessary for a given system.
The important issue of market separations and trends for RF and microwave ICs deserves special attention. In 1995, the overall market amounted to US$510 M and is estimated to climb to US$1 B by 2000. It can be seen clearly that silicon RFICs and MMICs form the major market and that this dominance can be traced to the strong preference for silicon technology wherever possible. Silicon circuit modules satisfy the technical and economic requirements of most mobile communications functions, including the RF/microwave front ends. Silicon circuits are satisfactory in many respects at analogue cellular and digital GSM frequencies (900 to 960 MHz). An exception is the linear RF power amplifier. The RF/microwave IC market in the 1990s is shown in Figure 6 .
A further advantage of the current level of technology is that silicon ICs operate with a single power supply rail, whereas some (but far from all) GaAs ICs require both a positive and a negative supply rail. Another, less immediately tangible advantage of silicon over GaAs may be its more ready acceptability in the marketplace due to the perceived dependability of silicon as opposed to any relatively new material. As a result, silicon RF and microwave ICs continue to dominate most of these high volume markets.
On the other hand, GaAs MMICs and RFICs have exhibited the faster growth rate of approximately 17 percent per year. Markets for products founded on this technology amounted to US$92 M in 1995, but this value will accelerate to well over US$200 M by 2000. Applications in GSM, Digital European Cordless Telephone, personal communications network, satellite communications (including mobile), phased-array radars and WLANs fuel this growth.
The Call of the Market
By far the most tangible transformation of the European microwave industry is its heightened market awareness today compared to a decade ago. Many customers are becoming used to just-in-time marketing and manufacturing practices where products are delivered almost immediately following receipt of the order (without the supplier holding significant stock). Instead, the system is sufficiently fine-tuned to enable manufacture and delivery to order.
As with many other facets of contemporary industry, in addition to organic growth this high frequency industry is increasingly characterised by acquisitions. In most cases these acquisitions naturally tend to be a matter of relatively large corporations purchasing smaller firms. There is also a growing tendency for such transactions to be regional or global in scope. International alliances, often taking the form of joint ventures between various group companies, are important market drivers as well.
A pattern that has characterised the RF and microwave industry in the US that could develop more strongly in Europe is the continuous emergence of small specialised and innovative firms competing with (and indeed supplying) the large corporations in various sectors. Many of these smaller companies — some with a total of only five to 10 employees — export to Europe. The lesson surely is that, whilst a company should usually look to its home market first, it does not need to be large in order to export successfully.
One possible candidate in this direction for European technology is MIC modules. A trend exists for combinations of MMICs, discrete semiconductors and passive components to be mounted and packaged in modules using relatively noncritical designs and fabrication. Such an approach should appeal to small firms and avoids the need for high capital investment since the circuitry can be etched or provided using thick-film technology. These approaches require high quality microwave-grade substrates, woven plastics for etched circuitry, and high permittivity alumina or similar materials for thick-film technology. Key parameters include low loss at microwave frequencies and highly repeatable thickness and permittivity. An opening for new companies to supply in this field is apparent.
The major technological feature influencing the industry concerns semiconductors, in particular MMICs/RFICs and the silicon vs. GaAs battle. One thing appears virtually certain: the increased implementation of GaAs MMICs in applications at higher microwave and mm-wave frequencies. These applications include, amongst others, satellite TV, automotive radars and phased arrays. Many wireless (mobile) transceivers are also being implemented using the compound semiconductor, but the GaAs industry still suffers from previous over marketing and hype and too many strategic forecasters have been excessively optimistic concerning the take-up of applications for these types of chips. Now the time has decidedly come for such applications, on sensible economic as well as technical grounds, and the effects of the hype must be overcome so that suppliers can reap the full benefits. Stable, high yield chip fabrication is now on stream and this feature is already beginning to show advantages for high speed (communications and radar) digital processors as well as the high frequency analogue area. Compared to silicon, GaAs chips exhibit low DC power drain, which is obviously one advantage (particularly in mobile systems).
There are increasing signs of new activity in commercial RF and microwave component production from firms located in various Pacific Rim countries other than Japan. Several companies now exist in India, Taiwan and Thailand — all of which are known to be actively exporting to Europe. With good trade connections in Europe, India already has an enviable reputation in several areas of high technology relevant to microwave, notably satellite communications.
Apart from these companies, which are likely to increase their interests in Europe, firms like Samsung of Korea as well as Singaporean manufacturers also will enter the market. Fast-developing Chinese industries based mainly in the highly active new industrial area of Guan Dong also are likely to introduce further competition, although current economic pressures may affect some developments in the short term.
Whilst Eastern European companies will probably expand and new firms will almost certainly start up and compete in these fast-growing markets, the situation regarding central Europe is far less clear. Although Russia has embarked upon a market economy approach and has some potentially powerful RF/microwave technology with organisations such as R&K Domen and Electrodynamics, many would-be partners are waiting for the overall situation in the country to stabilise before committing themselves.
During the next six years it is likely that a number of regional indigenous companies with RF and microwave interests will be subject to various corporate changes: acquisitions, divestments, management buyouts and joint ventures. The advent of start-up firms and the formation of companies via management buyout negotiations are both notably significant in this type of market on account of their relatively flexible capability for coping with rapid changes that characterise these markets.
Terry Edwards is executive director of Engalco, a Harrogate, UK-based consultancy specialising in the RF and microwave industry. He can be contacted via e-mail at email@example.com.