How will industry trends affect semiconductor manufacturing?

The semiconductor industry has been on a bit of a tear recently. It’s had its success buoyed by the rising prices of memory modules, the demand for and rising prices of video cards for cryptocurrency mining, the emergence of OS-level support for eGPUs, the arrival of e-sports into the mainstream and, of course, a widespread industrial dependence on data centers and connected technologies.

This is a long-winded way of saying the future of the semiconductor industry is looking exciting and riddled with potential, with WSTS estimating 2018 will see an additional 15.7 percent growth. This comes after 2017’s already stellar 21.6 percent. According to estimates, this could be a $477 billion industry in another year’s time.

The industry trends affecting demand for semiconductors

Artificial intelligence has practically become its own industry. Businesses now rely on predictive analytics and the gathering of data from the furthest corners of their operations. Even consumer-level handsets contain dizzying amounts of computational power they use to “teach” themselves new “tricks” based on how they’re used and by whom.

If there’s a semiconductor “arms race” going on in the AI space, it’s thanks in part to Apple and Huawei, two tastemakers in the smartphone industry. Both companies are touting their new and “unprecedented” 7-nanometer system chips. These chips don’t just deliver raw power—they fuel machine learning and help us create even more convincing artificial intelligence.

Smartphones have become hotbeds of innovation and weathervanes indicating where other industries are heading. There are many compelling arguments for having vast amounts of computing power on our phones, which drive our personal and professional lives alike. Semiconductor manufacturers are sitting pretty as smartphones redefine what a computer can look like and what it can do.

And where smartphones dare to tread, tablets, smartwatches, laptops, desktops and even appliances are never too far behind. If Apple can put a “system on a chip” in its phones dedicated solely to machine learning, it’s merely a matter of time before the idea proliferates through the other major technology families.

While AI “going mainstream” is some of the biggest news to happen in a long time, it’s not the only factor contributing to semiconductor growth. Here are some of the other major trends across industries:

Self-driving cars

It’s been a long road getting here, but most of the major technology companies are actively testing self-driving cars on American roads. There’s an incredible amount of technology packed into these vehicles, and all of it requires computational power and uninterrupted connectivity with wireless networks and even other cars. That means semiconductors.

The rollout of 5G networks

Networks running “true” 5G aren’t here yet. But this transition is being watched closely by both governing bodies looking to make their nations more globally competitive and by technology companies hoping to stake their claim on this new standard.

Self-driving vehicles are now being tested in the U.S., and for it to function smoothly, the technology needs uninterrupted connectivity that will come from semiconductors. (Photo by Ed and Eddie via Flickr. CC BY-SA 2.0.)

The 5G standard is raising the stakes on both “ends” of the connection. It means more powerful and data-hungry devices, higher bandwidth requirements and even faster and more powerful data centers to serve all of this information to the world’s billions of mobile devices.

Internet of Things

The IoT is redefining what “technology” even looks and feels like. Who predicted a few years ago that we’d one day be connecting our bathroom scales and sneakers to the internet? The appeal of the IoT for connectivity and productivity extends from consumers to the biggest corporations. It means semiconductors are making their way into a more diverse range of products than ever before.

Ways businesses can capitalize on these trends

One of the many positive outcomes of the technology arms race is that the semiconductor industry is not as closed-off as it was. Now, even smaller companies can produce tailor-made semiconductors and chips for use in a dizzying variety of products.

But there’s a choice to be made here. Should a business focus on their place in one or two verticals, or pursue a niche that emphasizes multi-discipline “ecosystem” computing? In the first option, semiconductor and chip manufacturers figure out where their strengths lie and concentrate on making the finest chips possible for specific use cases.

It’s not necessarily about producing chips with the most impressive on-paper specs. For your company, capitalizing on semiconductor trends means being mindful of how interconnected technology is becoming and building products that perform a small number of functions extremely well.

Companies like these have to remain mindful of how their products will integrate with hardware and software standards across industries and product types. The design of a system chip can have a direct influence on the physical characteristics of a technology product, for example. Sometimes, semiconductor fabrication even requires specialized types of plastics with unique temperature management qualities, low chemical reactivity or other properties.

Companies like Texas Instruments and ARM have chosen the second option. Their focus remains on building diverse portfolios and on perfecting chips and operating systems with a wide variety of industrial applications, including aerospace, automotive, manufacturing, cloud and robotics. In fact, in ARM’s case, capitalizing on these trends meant shifting to licensing their IPs rather than necessarily performing the role of manufacturer themselves.

Finally, it’s worth considering how all of these factors might drive acquisitions and mergers in the tech space. The Internet of Things requires harmony at the IP, chip, software and cloud levels, for instance. A company specializing in one of these areas will likely have to diversify its holdings to stay relevant.

It’s a realization we’ve watched many tech companies make, and each year since 2015 has seen many, many billions of dollars spent on mergers as companies consolidate their energies and focus on growth and diversification. We’re not expecting the excitement surrounding or the dollars spent on, new approaches to semiconductor development to die down anytime soon.

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.