As IoT Looms, Its Emergence And Subsequent Expansion Will Drive The Semiconductor Industry
Rapid technological innovation in the last two decades has driven significant growth in the semiconductor industry, with total sales increasing from $51 billion in 1990 to $336 billion in 2014. [1] While growth in the 1990’s was mainly driven by the advent of the PCs and then the Internet, growth from the turn of the century was driven by the emergence of mobile phones. In the last few years, the growing popularity of smartphones and tablets has been the primary growth driver for the semiconductor industry. Now, as these two drivers achieve wide penetration, a nascent technology emerges as the next major engine of growth, one that by its nature is to be widely deployed. It is the Internet-of-Things (IoT) that we and others see as the next major driver of growth for the semiconductor industry. And though its parameters and standards are only now being established, its impact is likely to be both wide and deep.
The exponential increase in IoT devices over time will very likely increase demand for semiconductors quite broadly. The technology allows computing and control functions to be deployed widely across everyday devices via the gamut of wireless communications, ranging from Near-Field through Bluetooth to WiFi and cellular spectra. The impact on the industry should be broad. Analog devices and sensors are to detect the day-to-day phenomena driving demand. Microcontrollers (MCUs) and microprocessors (MPUs), predictably paired with memory devices, will be required to process the resulting data in the field. And connectivity chips and other radio devices will be used to communcate the data to various collection points. In turn, the data generated from billions of these connected devices will need to be processed and analyzed, which will require greater computing and storage capacity. Given this potential, almost every semiconductor company is aggressively embracing IoT as part of its long-term growth strategy. Let us take a closer look.
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Sizing Up The IoT Opportunity
IoT includes all other computing devices apart from PCs, tablets and smartphones. Or as McKinsey puts it, it is the networking of physical objects through the use of embedded sensors, actuators, and other devices that can collect or transmit information about the objects. Two important factors that have contributed to the growing interconnectedness of objects are: 1) The emergence of the cloud platform, which enables the storage of large amounts of data to be transmitted to and received on wired or wireless devices; and, 2) The declining cost of manufacturing semiconductors, which has made it economically feasible to install them on a range of everyday devices that were previously unconnected.
According to Cisco Consulting Services, IoT has the potential to unleash $19 trillion of global economic value, by 2024. McKinsey Global Institute estimates that the impact of IoT on the global economy can be as high as $6.2 trillion by 2025. The installed base for IoT devices is estimated to grow from around 10 billion connected devices today to as many as 30 billion devices (or 50 as per some estimates) by 2020. Driven by different methodologies, these studies vary on the magnitude of the market, but the potential is clearly very large. And, surely, the semiconductor industry is one of the leading enablers of this technological progress and thus it is positioned to be a key contributor and beneficiary of IoT.
The Basic Building Blocks Of The IoT Ecosystem
According to Gartner and Price Waterhouse Coopers, global semiconductor sales are expected to grow from $336 billion in 2014 to $432 billion by 2019 and around 34% of the projected increase is expected to come from IoT related opportunities. We reproduce their diagram below, which lists the various components and their respective projected weightings in the semiconductor market. Most of these components form the basic building blocks of the IoT ecosystem. (Note: The numbers are in billions US$.)
Source: Gartner, PWC Analysis
We noted above how the various families of semiconductors are to be leveraged in an IoT enabled environment. Sensors are used to accurately measure features such as proximity, position, humidity, temperature, motion, gas, liquid, etc. Analog circuits convert the sensory inputs into a stream of digital data to be processed by MPUs and MCUs paired with the memory they require. Wireless radios, such as WiFi, Bluetooth, etc., are then used to transmit the data to computing centers to be analyzed for gain. Logic devices process digital data in order to control the operation of electronic systems. Accordingly, they are projected to be the largest sub-category, though sensors and actuators are anticipated to grow the fastest.
IoT Exposure Of Key Semiconductor Companies: Steps They Are Taking To Leverage Growth
Below is a short summary of the various initiatives taken by some of the top semiconductor companies to leverage growth in IoT:
Intel – Learning from its short-shortsightedness in the smartphone market (where it lost out due to its late entry), Intel is determined to be one of the early entrants in IoT and has been aggressively investing to gain a wide footprint in the space. Intel is at the forefront of developing new generation low-power microprocessors for connected IoT devices. The research firm IoT Analytics has recently placed Intel at the head of the top 20 IoT companies. In addition to introducing new platforms, the company has launched a number of products and initiatives in the past year with different fashion, fitness and lifestyle brands, to accelerate its presence in wearables. Intel also has a reference platform which makes it easier for customers to implement their own IoT solutions and deliver innovations to market faster. Additionally, being the market leader in the server microprocessor market, Intel is at an advantage to gain from the explosion of data that IoT will bring about.
Last year, Intel changed its reporting structure and made IoT a stand-alone segment, underlining its growing focus on the business. The company currently derives less than 10% of its valuation and approximately 5% of its revenue from the IoT segment. We believe that accelerating its entry in IoT augurs well for Intel’s long term growth potential, and estimate the segment will account for approximately 10% of Intel’s total revenue by the end of our forecast period.
Texas Instruments – Texas Instruments is one of a small number of companies that has most of the building blocks to enable the IoT. It has one of the broadest portfolio of embedded wireless connectivity solutions, including MCUs, processors solutions as well as analog and various integrated devices. Though the company exited the cellular application processor market in September 2012, it is a key provider of WiFi chips for the embedded market. TI’s SimpleLink portfolio consists of low power wireless connectivity solutions – wireless MCUs, wireless network processors (WNPs), RF transceivers and range extenders for the broad embedded market – which help develop and connect anything to the IoT. The company has also partnered with ARM Holdings and IBM Corporation (IBM) to launch an initiative that aims to develop a dominant IoT operating system. [2]
Nvidia – Nvidia has an IoT development kit known as Jetson TK1, which the company believes will help developers connect the car, home utilities and billions of things that were not connected before to the Internet. At present though, NVIDIA’s prime IoT prospect is providing the computing units for autonomous cars.
The company stepped back from the mobile chip business earlier this year, and has instead increased its focus on the automotive segment, which is now the fastest growing segment of its Tegra processors business. Automotive electronics is a large market and it is going through a transition as cars have increased computing capability in both the drive train and the dashboard. The automotive segment is expected to be one of the largest growth drivers for IoT, and Nvidia is at the forefront of it. At present, there are 8 million cars on the road with Nvidia technology, and around 30 million more cars are in the pipeline.
Qualcomm – The majority of Qualcomm’s revenue comes from the sale of its wireless chips and processors for the smartphone market. However, the company admits to seeing heightened competition in the mobile market, where for years it has enjoyed a comfortable majority position. In order to remain competitive, Qualcomm is investing in adjacent opportunities; these include networking, mobile computing, IoT, and automotive, which are expected to drive meaningful growth for its chipset business in the coming years. Its contribution is already sizable. In 2014, the company earned $1 billion in revenue by selling its chips for city infrastructure projects, home appliances, cars and wearables. At present, there are approximately 120 million smart home devices, as well as 20 million cars and 20 types of wearable devices that use Qualcomm chips. The company expects about 10% of its chip division revenue to come from non-smartphone devices this year.
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Notes:- Semiconductor Industry Association [↩]
- Why the Internet of Things matters to Texas Instruments’ growth, Market Realist, November 19, 2014 [↩]