Implications of Internet of Things for the semiconductor industry Industry Survey December 2014
A GSA/McKinsey collaboration was launched in July 2014 to develop a global perspective on the Internet of Things (IoT) For semiconductors, the IoT is… … A key growth opportunity
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The number of connected IoT devices is expected to reach 20-30bn by 2020
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A semiconductor growth opportunity for servers/network equipment for “Internet” and components for deployed “things” exists
… A new strategic challenge
▪
▪ ▪
IoT devices often have specific technical requirements regarding low power consumption, integration, cost point, connectivity, and sensors The highly vertical character of the IoT (many small niches) requires a new approach on how to address the market The IoT is starting to happen but is still early in its development (e.g., unclear standards, no “killer application” yet)
SOURCE: Gartner; IDC; ABI Research
GSA/McKinsey collaboration Joint GSA/McKinsey effort to develop a perspective on implications of IoT for the semiconductor industry
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Understand drivers and roadblocks for IoT adoption
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Define opportunities, challenges, and levers to overcome challenges for semi-conductor players
Unpaid collaboration SteerCo of 12 GSA member executives oversees effort A final report summarizing the findings will be published in H1 2015
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We surveyed 229 executives: they see IoT as a critical growth opportunity and security/privacy issues as the biggest challenge going forward GSA/McKinsey IoT survey
Key findings
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Online survey sent out to GSA contacts at the VP level and up in semiconductor companies
▪
▪
Survey was open from November 24 to December 7, 2014
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229 executives participated in the survey
Executives confirm that IoT is a growth opportunity – 60% of participants see IoT as one of the top 3 growth drivers of the semiconductor industry – Inflection point for growth is expected in 3-5 years with wearables and smart home as “front-runner” verticals
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Participants span all industry segments, all regions, and all company sizes
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A focused view on today’s challenges for IoT adoption exists – Lack of security/privacy is considered to be the most critical challenge – Low customer demand, lack of common standards, and selection of right addressable market also seen as important challenges – Semiconductor community is optimistic that technological challenges can be solved
SOURCE: GSA/McKinsey
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PARTICIPANT PROFILES
Survey participants cover the full semiconductor value chain and a wide range of company sizes > 10% 5 - 9% 0 - 4% Company type IDM
Fabless Foundry OSAT
EDA
Other1
IP
Total, %
< 25m
2%
22%
1%
2%
5%
5%
4%
25 m – 100 m
1%
5%
1%
2%
1%
1%
2%
100 m – 1 bn
2%
14%
5%
1%
1%
0%
3%
26
> 1 bn
7%
4%
5%
2%
1%
0%
1%
20
12
7
8
6
10
Company size
41
13
45 Total, %
12
1 “Other” includes 7 participants with a focus on software, 4 listed as service companies, 4 as semiconductor equipment companies, and 2 as device OEM companies SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
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PARTICIPANT PROFILES
Survey participants are all high profile, 35% are C-level, and 21% are CEOs Breakdown of all participants Share of total participants, percent of total President, VP
C-level
Other
Total
112 (49)
Breakdown of C-level participants Share of total participants, percent of total
CEO
80 (35)
48 (21)
CTO
37 (16)
229
21 (9)
CFO
6 (3)
COO
5 (2)
C-level total
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
80
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WHICH IoT BUILDING BLOCKS DOES YOUR COMPANY OFFER? WHICH IoT END MARKETS DOES YOUR COMPANY TARGET?
Participants of the survey are not limited to specific IoT functional blocks or targeting specific end markets of IoT IoT building blocks offered participants
Target IoT market
Share of total participants, percent
Share of total participants, percent
Connectivity
20
Microprocessors/ microcontrollers
15
Sensors/MEMS
14
Smart home Wearables/ mobile devices
13
Automotive
IP
13
Medical
10
Security Memory
19
Industrial
Services
Software
20
Smart cities/ utilities
17 16 15 13
9 6
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
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IoT IS DEFINED AS “A NETWORK OF DEVICES THAT SENSE AND COMMUNICATE VIA THE INTERNET”
80% of the participants agree with the “narrow” definition of IoT that was chosen for this collaboration The IoT is defined as “a network of devices that sense and communicate via the Internet” Share of total participants, percent Agree, IoT is a network of devices that sense and communicate via the Internet
24
Yes, but IoT “things” could also communicate using non-IP networks
29
Yes, but IoT “things” should also do some local computation
27
Yes, but smartphones, laptops, and PCs are also IoT “things”
No, I have another definition (Please explain)
Narrow IoT definition
18
Wide IoT definition
2
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
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HOW IMPORTANT IS IoT AS A GROWTH DRIVER OF INCREMENTAL REVENUES? RATE FROM 1-5 (5 IS IMPORTANT)/WHEN WILL THE IoT GROWTH “INFLECTION POINT” HAPPEN?
Approximately 2/3 of the executives believe IoT is a top 3 growth driver for semiconductors and inflection point will happen in the next 5 years Importance rating of IoT as a growth driver of revenues Share of total participants, percent The number 1 incremental growth driver for the industry
Share of total participants, percent Now
17
One of the top 3 incremental growth drivers for the industry
48
1
In 1 - 2 years from now
21
In 3 - 5 years from now
Just one of many factors of growth for the industry I expect limited incremental growth from the IoT
Expected timing for IoT inflection point
53
33 > 5 years from now 2
I don't expect a disruption, but steady (geometric) growth
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
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14
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HOW IS YOUR COMPANY ENGAGED IN IoT?
Fabless and foundry are the most highly engaged with IoT, although there are different levels of participation within industries Level of engagement with IoT, by industry segment Share of participants by industry sub segment, percent Only migrating existing solutions Fully building IoT using current technologies solutions from scratch
Fabless
Foundry
IP
1
2
3
4
19
29
26
26
2.6
50
37
10
2.5
3 25%
IDM
6
EDA
30
OSAT
Average score 2.5
24
31%
13%
53
31
20 53
31
2.5
10
2.4
5
2.3
45
23
0
Selected fabless players with strong focus on IoT
High use of existing solutions for IoT by IDMs, less IoT-specific developments
2.0
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
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WHAT ARE THE KEY END MARKETS FOR IoT (BY GROWTH) IN THE SHORT AND LONG TERM?
Although wearables/mobile devices and smart home will receive the most attention in 2015, all markets are expected to be equally important in 2020 2015 IoT market rating Average rating
Wearables/ mobile devices
2020 IoT market rating Average rating
2.3
3.3
2.1
Smart home
3.2
Industrial
1.9
Automotive
1.9
3.2
Medical
1.8
3.2
Smart cities/ utilities
1.8
Low (1)
3.0
Can be interpreted as equal importance of markets in 2020 or ambiguity about expectations for the future
3.0
High (4)
Importance
Low (1)
High (4)
Importance
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
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WHAT ARE THE KEY CHALLENGES TO SUCCESS FOR IoT AND SEMICONDUCTOR PLAYERS? DISTRIBUTE 100 POINTS TO 7 OPTIONS
Security/privacy is the top challenge for the success of IoT while industry is optimistic about overcoming semiconductor technology challenges Key challenges to success in IoT1 Average score from all participants (out of a total of100 points)1 Security/privacy issues
19.3
Low customer demand (no killer apps)
16.4
Lack of common standards
16.3
Addressable market challenges (too fragmented, unknown/new customers, ...) Value extraction challenges (margins too low, cost too high, value captured by others, ...) Semiconductor technology challenges (low power, integration, ...)
Security and privacy is seen as key challenge to IoT growth
15.5
14.8
12.1
Industry is optimistic about semiconductor technology challenges
1 Participants have a total of 100 points to distribute to challenges based on severity/importance of challenge (more points = more important) SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
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SOLUTIONS FOR CHALLENGE: SECURITY/PRIVACY ISSUES
Collaborating with other players in the value chain is seen as a key solution to fix security/privacy issues Solutions for IoT challenge: “security/privacy issues” Rating by solution Collaboration – with other value chain players (e.g., with solution providers)
3.2
Organic development of new capabilities
2.5
Government/regulation needed
2.4
Collaboration – with other semiconductor players
2.4
1.9
M&A Not important (1)
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
Important (4) 11
Solutions for challenge: Low customer demand (no killer apps)
Supporting innovative development is considered the most promising solution to “low customer demand” Solutions for IoT challenge: “low customer demand (no killer apps)” Rating by solution Actively support innovative 'killer app' development (e.g., for start-ups, via open source hardware or software) R&D investment in more advanced technologies (e.g., low power, wireless charging, ...)
3.1
2.8
Targeted IoT sales and marketing activities (e.g., distributors, branding, ...) Just wait for “killer Application” to emerge
2.2
1.9
Not important (1) SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
Important (4) 12
Solutions for challenge: Lack of common standards
Industry associations and powerful players to support standard through are seen as most promising solutions to overcome lack of standards Solutions for IoT challenge : â&#x20AC;&#x153;lack of common standardsâ&#x20AC;? Rating by solution Industry associations support standard definition
3.3
Powerful players establish own technology
3.0
Collaboration with other semiconductor players
2.7
2.3
Regulation fixes standard Just wait and see which standard prevails
1.6
Not important (1) SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
Important (4) 13
Solutions for challenge: Addressable market challenges (fragmented, unknown, etc.)
Collaborating and prioritization of product offering seen as key solutions for entering IoT market despite its complicated character Solutions for IoT challenge: “addressable market (fragmented, unknown, etc.)” Rating by solution Collaboration – with other value chain players (e.g., with solution providers, ...)
3.3
Product offering – prioritize key verticals/find the right niche
3.2
Product offering – build customized platform
2.8
Targeted IoT sales and marketing activities (e.g., distributors, branding, ...)
2.7
Collaboration – with other semiconductor players
2.3 2.2
M&A Not important (1)
SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
Important (4) 14
Solutions for challenge: Value extraction challenges
Industry believes reducing costs and adding additional revenue are the best ways direction to fix value/margin challenges related to IoT growth Solutions for IoT challenge: “value extraction challenges” Rating by solution Additional revenue – offer data/software services
3.1
Actively try to reduce costs (use open source hardware/ software, reduce IP costs, ...)
3.0
Additional revenue – offer design/turnkey services
2.9
Increase margin – marketing (branding, new channels, ...) Just wait for scaling/cost reduction to happen
2.7
Industry shows ambiguous opinions on how to fix value extraction challenges rating of first 4 solutions is about 50% less than other challenges
1.6
Not important (1) SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
Important (4) 15
Solutions for challenge: Technology challenges (low power, integration, ...)
R&D investment and collaborations expected to drive solutions for technology challenges Solutions for IoT challenge: “technology challenges” Rating by solution R&D investment in more advanced technologies (e.g., 3D integration, ...)
3.3
Collaborations – with other semiconductor players
2.9
2.2
M&A
Just wait for technology to improve
1.6
Not important (1) SOURCE: McKinsey and GSA IoT survey (n=229, executives from semiconductor companies, VP level and up)
Important (4) 16
Contact information in case of additional questions
Mark Patel Principal
Sandro Grigolli EMEA Executive Director
Mark_Patel@mckinsey.com
SGrigolli@gsaglobal.org
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