原创 More than hardware sockets - Opportunities for semiconductor industry in IoT

In October 2011, four months shy of filing for bankruptcy, the CEO of a major player XXX told investors, “XXX is using state of the art production technology, yet the finished products are sold for half the price of a rice ball”.

Guess the industry and the player mentioned above…..

Well, the industry is semiconductors and the player was Elpida.

Let me share here some thoughts on this industry and value capture on opportunities in one of the biggest and hottest trends – the Internet of Things (IoT).

Semiconductor has long been the enabler behind various technology and market trends – be it in consumer electronics, automotive, healthcare, industrial or even lately on the smart devices, IoT. However the industry which has needed to invest heavily to become an enabler leaves a fair bit of money on the table when it comes to capturing value on its enablement.  A major chunk of the value produced by its technology has been captured by others in the value-chain – system developers, electronics companies and the consumers who benefit from the price reductions as technology scales. With higher fixed costs and lower variable costs, the semiconductor industry’s vulnerability to price pressure has also risen.

With the growing saturation of the smartphone market  - not long back a major revenue generator for this industry - several semiconductor players are now jumping on to the IoT bandwagon. However, we should note that it is not just where we play but also how we play that is equally if not more important.

Companies are exploring various ways to play in this market.  I list a few below along with some questions that these paths raise.

The straight forward and traditional way here is to provide the silicon required for the IoT application. These mainly include sensors, microcontrollers and connectivity. Power management and pricing is crucial. The more systems and platforms that contain your silicon, more is the revenue you get. While volumes may turn out to be very high, the questions your strategy needs to answer here is – How do I get the stickiness of my silicon in my customer’s system or application? Will my chip features list be sufficient or should I get into the price war and if so do I have the resources to sustain it, how will it affect my profits?

Another approach can be to broaden your product definition and increase your impact on the total system performance by a better positioning. So what does the product definition include and what is required? Is it hardware (your chips/chipsets along with embedded software) or is it your hardware plus connectivity (with different interface standards) or is it hardware, connectivity as well as customized software leveraging to various extents the final value perceived by the end customer?

The questions your strategy needs to address here are: What is my Customer Value Proposition (CVP) here? Is it my traditional hardware stack (pricing and slightly incremental features list/datasheet may not make a sustainable stickiness)? Or will the customized software act as my product differentiator? Should my product offering include more from the IoT stack? Like collection of the data that my hardware helps capture or going further, analysis of this data?  Going up higher on the IoT stack opens up more revenue sources. However this shift will come along with new capabilities requirements. Am I ready for this paradigm shift? Will it cannibalize my existing biz? And if so, should I tread on this path? The danger being that if the shift is bound to happen, someone else will cannibalize your biz, if not you.

Take the example of a health patch used for monitoring a person’s health and which measures multiple parameters like heartbeat, skin temperature etc. Real time data captured from the patch is transmitted to health care providers who aggregate, analyze and monetize that data. The semiconductor companies provide the sensors that collect the data, microcontrollers that process, analyze and wirelessly communicate the data to the health care entities. The gateway for the data to be further analyzed and sent to the cloud also has chips provided by the semiconductor industry. Now if the semiconductor vendor aggregates the data in real time and offers it as a service to the health care providers in return for a percentage of their revenues derived from that data, it serves as an additional value capture by the semiconductor vendor. Going beyond a technology framework, it can open up its digital cloud platform to devices and services of other providers like doctors, diagnostic equipment providers, clinical trials entities, fitness equipment providers, health care suppliers etc. Going further, the silicon vendor can incorporate some data analytics too and up its service to the health care entities. However that would require partnering with players having the domain know how – health care in this case. But then IoT is a great playing field for companies which are willing to transcend boundaries.

A similar example is an offering in the automotive industry where the semiconductor industry provides silicon for safety, entertainment, navigation etc. While the amount of electronics and silicon in a car has grown multi fold over the years, the semiconductor industry can provide a platform which can not only capture data but also send the data for maintenance monitoring, fuel and mileage management etc. – additional value captured.

As in any other market, targeting the IoT market segment that presents not just high revenues but also high profits will require a proper strategy. This will require exploring opportunities in adjacent areas and working across traditional boundaries and biz models. The organization will also need to assess what new capabilities and partnerships it will need to develop and align its structure accordingly.