Computer Chips for Cars: The Next $100 Billion Industry

Drop in on this conversation if you don’t mind. My dad was talking to my 17-year-old niece the other day.

Dad was telling her she should learn to drive a manual instead of an automatic car. There’s the generation gap right there. I suggested it probably wouldn’t matter fairly shortly either way. The car will drive itself.

Self driving cars are a lot closer than most people think. Cars are changing. As they morph into self-driving vehicles, most likely, even more chips are going to be required.

This is known as the ‘internet of things’. That’s a phrase that the tech guys like to use that refers to the addition of sensors, computers and communication equipment being built into products we use today.

The average new car has 616 chips in it. In 2013 there was an average of 550. That’s a value of US$350 per vehicle this year, up from US$250 in the year 2000.

This process is driving all sorts of deals and takeovers in the US. We’re talking about some really big ones, too. Telecommunications company Qualcomm last month announced its intention to buy the shares of NXP Semiconductor, the world’s largest automobile chip developer, for $US39 billion.

This is the biggest acquisition in the history of the semiconductor industry, and the second largest tech deal of all time. NXP became the largest supplier of semiconductor chips to the auto industry last year when it bought Freescale Semiconductor.

There will be plenty more deals as time goes on. The chip business is only going to get bigger. The growth path is clearly one way. And that’s up! One tech writer for Wired magazine says he’s getting calls from hedge fund guys who want to understand how artificial intelligence is going to ramp up this industry even further.

Now comes the news that Samsung is going to spend US$8 billion to buy US parts supplier Harman International Industries. Samsung wants a bigger presence in the market for automotive electronics and connected technologies.

Here’s why, from the Financial Times: ‘Only 40 per cent of cars are currently connected with such technology. In 10 years, that will increase to 90 per cent. It is set to be a $100bn market,” said a person familiar with the company’s thinking.’

From South Korea we need to head to Germany. Siemens is offering to spend US$4.5 billion to buy Mentor Graphics, a company with component expertise for the automobile and aerospace industries.

The entire car industry is being swept with change. It’s not alone. The disruption happening all over the world in the next decade might just be the biggest we’ve ever seen in history.

Over at Cycles, Trends and Forecasts we say the world is on the verge of the biggest boom of all time. Find out why here.

Best wishes, 

Callum Newman

Callum is a feature editor for Money Morning. He covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors.

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