The semiconductor industry needs to consider new business models based on open source hardware, re-programmable silicon and Features-as-a-Service to drive its next phase of growth.
After half a century of sustained expansion and innovation, semiconductor sales and profits are noticeably slowing amid shifts in consumer trends, market forces and the pace of innovation. The resulting slew of consolidations has left many wondering if the industry is losing its mojo.
Worldwide chip sales decreased by 1.9 percent during 2015 to $333.7 billion, according to Gartner, with the World Semiconductor Trade Statistics organization forecasting a slim 1.4 percent sales rebound in 2016 to $341 billion. Meanwhile, Morgan Stanley notes that chip-industry initial public offerings accounted for just 5% of all U.S. technology IPOs in 2015, compared with 25% a decade earlier.
The rapidly evolving Internet of Things could very well be a ‘next big thing’ to revive industry growth. But the IoT cannot reach its full potential based on the current paradigm of rising chip development costs and ever-decreasing margins. Even if the IoT lives up to optimistic projections, designing and building $1 sensor chips to monitor fridge temperatures or the availability of urban parking spaces is unlikely to produce much profit.
Semiconductor companies need to seriously explore changes to their business models. Specifically, they need to embrace open-source hardware for commodity IP, work with reprogrammable chips to help avoid rising mask costs and augment chip sales with potentially lucrative downstream revenue.
The success of open-source software has set an important precedent for the semiconductor industry. Faced with prohibitively expensive development costs, companies may opt to avoid unnecessary toll collectors by placing more of an emphasis on open source hardware IP blocks and boards as they create new service-centric revenue streams.
Reprogrammable chips may also offer the semiconductor industry an opportunity to reduce development and manufacturing costs and create new sources of revenue. Rather than inventorying versions of their chips for every scenario, chip makers can sell a single configuration with minimum functionality, asking OEMs or end users to pay for the enablement of additional capabilities. By offering Features-as-a-Service system architects can significantly extend the range of markets they can address per chip design while still meeting customer requirements.
Undoubtedly, there will be numerous ways of implementing this new model. However, gaining access to more of the industry’s downstream revenue will clearly be the start of a truly transformative change for many chip makers.
For decades, chip makers have settled for a model that creates trillions of dollars in downstream benefits for the companies and consumers who use their chips. Yet, chip makers themselves haven’t managed to fully tap the potential of this evolving ecosystem.
To be sure, the semiconductor industry has traditionally focused more of its innovation efforts on hardware than on software development. It’s time for a change.
--The full version of this white paper, written in collaboration by the Global Semiconductor Alliance and Rambus, is online here and here.