In recent years, smartphone sales have been a growth opportunity for the semiconductor industry. However, with smartphone growth rates starting to plateau, semiconductor companies will need to adapt their offerings for the next big growth opportunity. Fortunately for them, this opportunity is here. According to a 2016 PreScouter report, the Internet of Things (IoT) market is expected to grow to nearly $900B by 2022, at a >30% CAGR. This large market size and explosive growth will provide many opportunities for established and new players alike, and those players in the semiconductor industry that are best able to alter their offerings to reflect the evolving necessities of the IoT market will come out on top.
IoT Will Drive Innovation:
In order to maximize the value they earn from IoT device sales, these firms will need to expand their operations to encapsulate other parts of the value chain. According to a recent McKinsey article, the companies’ traditional focus on Silicon may not be optimal for IoT as chips represent only a small part of the value chain. However, expanding beyond chip making will require companies to become comprehensive solution providers, instead of component providers. Moreover, for semiconductor companies to grow and increase their share of the IoT opportunity, they will have to differentiate their product offerings. IoT will therefore drive innovation targeting end product features and new ways to sell as the primary means to differentiate competitively in the IoT market.
The IoT boom should have other positive correlations for the semiconductor industry. For example, by incorporating equipment health monitoring IoT technology into the production environment, these players can benefit from decreased downtimes, increased quality and efficiency, and higher safety standards. Additionally, these businesses can increase efficiency and profits, reduce asset loss, inventory size and inventory waste for perishables, gain more satisfied customers, and decrease customer turnover by using the IoT to automate supply chain operations, ensuring product deliveries are made on time and inventory is tracked. The IoT can provide energy-saving benefits by controlling machine/device usage automatically, based on data generated by sensor-based technologies and previous usage patterns in factories.
Thus, by both developing and continuously using IoT technology, semiconductor companies should benefit from additional insights as both a customer and manufacturer. While these changes will require these firms to gain new technical and business competencies, and to continuously innovate in order to match the fast pace of evolution of the IoT market, the new insights they receive as a customer will help them navigate through this evolution. Applying these lessons and new competencies should also benefit these players by helping them tap into other explosive exponential technologies such as virtual/augmented reality and artificial intelligence. The future will be bright for innovation-focused players in the semiconductor industry that are able to tap into the growth of the IoT market.
