Capturing future sources of profitable growth


The semiconductor industry is facing key challenges. In recent years, M&A mega deals have led to consolidations within the market, while the industry continues to mature. This leaves rather moderate growth prospects for the next three years. Semiconductor companies will have to consistently farm limited organic growth sources whilst at the same time tapping into new and growing macrotrends. To be successful in the long term, they must recognize the potential of the disruptive technologies and new markets that the Internet of Things will bring.

How can companies relive the previous successes in the mobile consumer segment?

In the 1990s and even early 2000s, growth booms in the industry with annual sales growth of 30 to 40 percent were the norm. Thanks to the sharply increasing demand in the consumer market for PCs, laptops and mobile phones, many smaller technology companies were able to grow into giants in the semiconductor business (FIGURE 1). However, since 2011, the industry has had to manage its growth expectations for the consumer market. With an average annual growth rate of 3.4 percent expected from 2015 to 2020, the strong growth period seems to be over and the dynamic start-up atmosphere of the past appears to be more or less history. The entire industry already has a market size of over 350 billion euros, with intense rigid competition among existing players. M&A mega deals (FIGURE 2) such as Qualcomm-NXP, Avago-Broadcom, Softbank-ARM and Western Digital-SanDisk have severely consolidated the market and now these companies are deep in operations integration and rationalization mode.

Is this the end of the period of constant growth outperformance? Not at all. Simon-Kucher project experience tells us that even organic growth sources based on dynamic market trends can be tapped, meaning companies can relive the successes in the mobile consumer sector. However, two fundamental strategic questions need to be answered: Where will these new growth waves come from?

And how can the imminent stagnation be avoided? We have identified three sources of organic growth that will play a pivotal role in the future of the semiconductor industry.

1.Exploit new disruptive technologies such as silicon carbide

Semiconductors based on silicon carbide (SiC) represent a strong area for future growth. Compared to semiconductors made of regular silicon, SiC-based semiconductors can operate at much higher frequency and temperature and convert electric power at lower losses, promising increased speed, robustness and efficiency. SiC devices are capable of managing the same power level as Si devices at half the size, boosting power density and reliability.

While a handful of players have already secured a favorable starting position in the market, there continues to be strong medium-term growth forecasts which means that the current market volume in this emerging product segment (~$200 million) still offers attractive entry potential for second and third movers. Several suppliers such as Dow Corning and Nippon Steel have entered and increased activity in the SiC market while companies such as Wolfspeed/Cree are experiencing decline in market share. This goes to show that there is still room to wrangle for territory.

We anticipate that hype will become mass reality within the next five to eight years, particularly driven by the growing demand in hybrid and electric mobility, regener- ative power generation and industrial applications. Notably, SiC may have a huge impact on the automotive industry, in particular on electric vehicles and e-mobility due to the high efficiency levels. In each of these markets, customers continue to demand and expect smaller wafers and devices with increasingly better performance profiles than Si-based devices, made possible by SiC technology. According to a recent Simon-Kucher study, global demand in the SiC technology segment and its sister technology gallium nitride (GaN) will amount to more than three billion euros by 2025, with double-digit annual growth rates. Industry analysts note that SiC has gradually emerged as “mainstream” material since 2016 which will result in drop in prices for devices from 2018 onwards. This would translate to possibly large increases in volume demand.

At the moment, the technology is still relatively cost-intensive and more complex in production primarily due to lack of scale. As such, SiC and GaN remain niche markets for now. However, having achieved first significant design-wins, first-moving companies are proof of the future market potential. The remaining semiconductor companies need to adapt their innovation strategies or risk trailing the pack. To successfully implement SiC and GaN system solutions, it is essential to closely orient new product development towards emerging market needs, starting from initial development phases.

Here, semiconductor companies have to identify the appli- cations where customers already demand high switching voltage and speed, low switching losses, and a small size and weight. Only in doing so can they expect customer- oriented market success from design-in to design-win.

2. Anticipate and seize new markets materializing from the Internet of Things

The Internet of Things (IoT) has now become the catch-all phrase that encapsulates an enormous spectrum of potential applications and markets revolving around interconnected physical devices and appliances. As it continues to evolve and numerous markets around it become commercially viable, semiconductor companies have a huge opportunity to capture the underlying profit pools. By some accounts, something like 3 billion new IoT-enabled devices are manufactured per year; at the most rudimentary level, each of these devices require microcontrollers, sensors, actuators and a whole host of other semiconductor-enabled parts. Another indirect area of growth for semiconductor companies will likely emerge from the fact that the exponentially increasing amount of data generated by IoT products need to be processed and stored. This will lead to demand for more server farms and greater storage capacities.

IoT products and applications would not be possible without the continued advancements in semiconductor technology, and the demand for inexpensive chips that can be mass- produced will only continue to increase. Rather than spectating and reacting to this market macrotrend from the sidelines, semiconductor companies should see the IoT as an integral part of the future market’s DNA.

The current challenge is the fragmented nature of the market, with no clear “killer application” or common platform; rather, there is a multitude of smaller niche opportunities that in its entirety promise overall attractive growth potential. No player has yet been able to establish a market-dominant position in this highly diversified market. There are, however, specific end-markets that have taken the lead (for now) in terms of showing promise of growth, such as smart home applications, consumer wearables (e.g. fitness bracelets, smart watches), medical electronics, and connected cars (FIGURE 3). The IoT will turn these individual niche segments into potential game-changers for the semiconductor industry.

Amid these fast-evolving segments, critical for the success of semiconductor companies is their agility in swiftly responding to emerging trends and integrating hardware and software components along the value chain and ultimately, offering a seamless IoT solution. Semiconductor companies already focusing on seamless security, communication intel- ligence and user-friendliness are a step ahead in strength- ening their position. To not be left behind, semiconductor companies need to make the strategic decision of prioritising resources and investments into IoT-related growth sources and resist the inertia and temptation to solely rely on existing “bread and butter” revenue streams, regardless of how healthy the current margins are. Related to this, to get serious about this emerging opportunity, semiconductor companies should not view the IoT markets as a nebulous concept with opportunistic revenue streams, but rather conduct in-depth analyses of their current position within the changing value chains and competitive landscape to formulate concrete go-to-market plans.

3. Shift from component-centric sales to supplying system solutions

Finally, a third dimension of growth beyond new products and new markets for semiconductor companies is to move up the value chain. Increasingly, leading market players are integrating chips, drivers, software and sensors to offer partial system solutions, with the ultimate objective of being ecosystem enablers. Naturally, this requires the capability to not only sell hardware (semiconductors, wafers, etc.) but an entire system and services around it that several entities from different industries can utilise to establish their own IoT products. However, for companies traditionally built around selling components, doing this successfully is not a straightforward undertaking. Many sales forces are finding themselves lacking the organizational setup and solution-selling approach critical for success. In addition, in order to integrate products in the portfolio into systems solutions, companies have to establish effective cross-industry channel management on the sales front and at the same time develop strong alliances with partners along the value chain to ensure a stable ecosystem. Successful players will be those in the market with the capability to provide modular solutions that can readily interlink products with security, software and system consulting services.

As a result, we believe that the desire of companies to move towards being system suppliers and ecosystem enablers will further increase M&A activity due to the need to acquire specialised knowledge. Notably, Intel has acquired three companies within the space of a year from different parts of the industry to assimilate specific expertise related to IoT i.e. Altera (designer and manufacturer of program- mable logic devices), Nervana Systems (artificial intelligence software developer) and Itseez (specialist in computer vision technology and algorithms).

In summary, despite some notions otherwise, we are bullish about the imminent growth potential in the semiconductor market driven by very powerful macrotrends in product technology, emerging applications and also value chain shifts. Semiconductor companies thirsty for new waves of exponential growth would do well to heed the signposts from these trends and re-orient their product development, industry alliances and sales approaches rapidly in order to capitalise on these opportunities before the winner takes all.

Grigori Bokeria is a Partner in Simon-Kucher’s Cologne office, where Sascha Rahman is a Director; Matthias Frahm is a Senior Director in the Bonn office and Xi Bing Ang is a Director based in the London office. All four authors work within Simon-Kucher’s Global Technology & Industrial practice.


Easily post a comment below using your Linkedin, Twitter, Google or Facebook account. Comments won't automatically be posted to your social media accounts unless you select to share.

Leave a Reply

Your email address will not be published. Required fields are marked *


3D-Micromac unveils laser-based high-volume sample preparation solution for semiconductor failure analysis
07/09/2018microPREP 2.0 provides order of magnitude time and cost savings compared to traditional sample...
Leak check semiconductor process chambers quickly and reliably
02/08/2018INFICON,a manufacturer of leak test equipment, introduced the UL3000 Fab leak detector for semiconductor manufacturing maintenance teams t...
Radiant Vision Systems announces new automated visual inspection system
11/06/2017Radiant Vision Systems, a provider of high-resolution imaging solutions for automated visual analysis of devices and surfaces, an...