One sign of a healthy industry, beyond volume sales and revenue, is positive activity within and along the supply chain, notably consolidations (Mergers & Acquisitions (M&A)) that strengthen and extend the core competencies of businesses for greater market reach. Certainly the past few quarters have evidenced this trend of M&A and market extensions which is confirmed in the results from our Annual Smith Global Supply Chain Survey (available soon as Free Download from Smithweb.com) that relate these challenges and the new strategic partnerships being formed.
As consolidations continue across the global semiconductor supply chain, one of the growing strategies we see are new collaborations and extended demands for services from partners. Not only is competition increasing, but collaborations are as well. Some of this interesting trend is related, but some is happenstance having more to do with the shifts happening in what is driving markets, product design, and demand globally. Certainly, the growth of the Internet of Things (IoT) is squarely behind the collaboration as well as some of the competition. The reason being is that IoT is not just a consumer electronics (CE) phenomenon, but importantly IoT is steadily moving into industrial and manufacturing sectors to improve process flow and improve productivity, as a recent Boston Consulting Group (BCG) research report, Industry 4.0, discusses.
As BCG explains, "Industry 4.0 will transform the design, manufacture, operation, and service of products and production systems. […] Manufacturing will be transformed from single automated cells to fully integrated, automated facilities that communicate with one another and boost flexibility, speed, productivity, and quality." What this means is manifold for the semiconductor and electronics industry: firstly, there is steady rise in demand for industrial automation which will extend and strengthen demand for components and industrial automation machinery; secondly, there is increased networking and connectivity requirements to interlink manufacturing processes and the associated business processes each demanding increased network and communications hardware; finally, there will be an increase in collaborative ventures and closer supply chain partnerships which, thus far, entails greater breadth of services extended to partners who are deepening their supply chain relationships to improve competitive market positions globally through collaboration and "coopetition."
Growth in 2015 continues
On the ground, what we are seeing internally at Smith, what our customers are saying, and what we've verified through our latest, annual global supply chain survey, is that 2015 is marked by different challenges than we've seen in previous years, that is, after the leading, evergreen issue of "market demand challenges."
This year, M&A and supplier collaborations are posing real challenges alongside of economic changes and uncertainty. However, unlike in 2013 and intervening years since the 2008 recession, especially, we saw 2014 reset the growth pattern into a more positive direction. Across the board, the industry data have underscored wide-spread growth happened in 2014 and is expected to continue through 2015 and begin to moderate some in 2016. If we consider the M&A activity as well as the current rise in IoT and wearable technologies, both indicated in the Smith survey as leading technology drivers, we see there is a broadening of both competitive threats, challenges but also a growth of new global, market opportunities for a variety of sectors, not just CE, as mentioned above. Medical and health, industrial, communication and networking equipment, and especially industrial and automation are all seeing growth, granted slower than CE, but still steady and sustainable growth that will continue to enhance a solid foundation for the semiconductor and electronics industry.