Armanino Blog

As OEMs Add "Smart" Products, Chip Demand Soars| Armanino

by Jeffrey Russell
April 07, 2015

The much-touted Internet of Things (IoT) is making many original equipment manufacturers (OEMs) rethink their business models to find ways to capture and use big data in their products. Although the IoT faces challenges, such as security issues, this growing need for interconnected devices is opening up vast new markets for semiconductor manufacturers.

Challenges aside, technology research firm Gartner Inc. predicts that there will be 25 billion connected devices by 2020, up from an estimated 4.9 billion in 2015. Research firm IDC puts their 2020 forecast even higher, at 30 billion connected devices. 

The IoT can be loosely defined as a system of connected devices that “talk” to each other to provide data or control functions. Device interconnectivity―the crux of the IoT―is impacting virtually every industry, from healthcare to consumer electronics to transportation.

Chips power interconnected devices’ processing, sensing and communications functions, and analysts expect the semiconductor industry to see huge increases in demand as OEMs incorporate connectivity into their products. Gartner forecasts almost 30% annual growth over the next five years for IoT-related semiconductor revenue, which they predict will hit roughly $45 billion by 2020.

Between now and 2020, Gartner expects to see particularly strong demand from automobile makers and consumer goods manufacturers.  Chips are finding their way into a wide range of consumer products that improve peoples’ daily lives, from coffee makers that you can control from your phone to wearable fitness devices that track your heart rate and other biometrics. Auto companies are using chips for tasks like predictive maintenance, in which sensors in the engine can detect and signal that the car needs to be serviced.

Industrial applications are another strong driver of IoT-related chip demand, as companies use connectivity to improve efficiency and safety in their businesses.  For example, a factory can be equipped with sensors that issue advance warning of potential problems like assembly line shutdowns, or an office building’s elevators can signal that a part is wearing out.

Too early for clear winners  
As is the case with any of their potential business, semiconductor manufacturers need to evaluate their portfolio to make sure they are investing their resources in IoT products that have the highest volume opportunities.  Anticipating market trends is never easy, but it may be particularly tricky where the IoT is concerned, because it’s still too early to see many clear winners among OEMs who make connected products.

One big IoT-related challenge for many OEMs is deciding which communication standards to support. Although sectors such as healthcare and automobiles have fewer and more tightly managed standards, sectors such as consumer electronics have too many for a device to feasibly support them all.

More connected devices mean more vulnerability, so security is another wild card that could impact the market, and the security challenges are growing along with the IoT. How will OEMs―some of which have only recently added connectivity to their products―get a security patch to the end users of their sensor-embedded washing machine, for example? Or how will consumer device users even know their system has been hacked? These issues will certainly continue to play out as the market evolves. 

Are you ready for higher demand?
Security and other challenges may impact the growth of connected devices, but they are not likely to derail it.  Chip makers need to ensure that they are prepared to handle significantly larger volumes, even though the rise of the IoT won’t fundamentally change the way semiconductor companies operate.    

Implementing the right technology infrastructure is critical to success in a higher demand environment.  An integrated platform of business systems, with partial or full automation, can help companies manage their forecasting, operational and reporting needs as new designs hit the pipeline and their business grows.

Although some of the IoT fanfare is just hype, there is no question that the IoT is impacting virtually every industry in some way. As uses for device connectivity keep multiplying, OEMs will continue to innovate, which means big opportunity for the semiconductor industry.

April 07, 2015

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