Written by Lisa Ann Cairns, Ph.D.
The sheer number and type of connected devices making up the IoT is resulting in unprecedented numbers of new electronics adopters. The IoT device market presents many opportunities, as heterogeneous devices and component modules are integrated to meet new demands. IoT and the Mobile Economy bring real component and market opportunities that will dramatically change our industry and set us on a new path of long-term, sustainable growth.
The Internet of Things (IoT) and the wider mobile economy are driving rapid electronics expansion and greater consumer adoption into emerging economies and across more industries and market sectors, such as health, automotive, and especially heavy industry. The importance of this new wave of growth is that it is likely to rival both the dominant PC adoption and the hot mobile/smartphone adoption phases, to date. The sheer number and type of connected devices making up the IoT added to the millions of new electronics adopters annually is beyond compare to what we've seen to date.
The reasons behind this phenomenal growth go back to basic economics: significant price declines for components and end-products, coupled with a growing global demand for internet and mobile access. The demand comes from people wishing to connect to the internet to receive healthcare, news, and goods and services, and to connect with others. The IoT growth will be more greatly-realized at the point when more autonomous Machine-to-Machine (M2) connectivity is implemented and multiple devices are able to function and connect to in order to ease required tasks people still need to perform in daily life. From healthcare advances to improved transportation and natural resource conservation, and onto personal social events, IoT holds significant promise, and is the main driver of double-digit growth across the semiconductor and electronics industry verticals well into 2020 and beyond.
Mobile market dynamics and explosive growth period ramp
The emerging Mobile Economy encompasses the entire, booming IoT ecosystem, in addition to smart wireless devices (SWDs) (smartphones, mobile phones, and tablets), traditional PC computing devices, and the backend data connection and networking infrastructure plus data storage and analysis sectors. Looking at the Mobile Economy, the growth potential quickly becomes clear for the semiconductor and electronics industry because the entire framework – the diversity of the devices and infrastructure – all rest on components and devices supplied by our industry. Even more important as a growth indicator is the ubiquity of the Mobile Economy ecosystem that will expand across market sectors and verticals, interconnecting increasingly more aspects of daily life.
The demand for mobile connectivity, the first step in a realized IoT ecosystem, can be better met now because of 2G network and telecommunications expansions in developing market economies, and because of upgrades to 3G and 4G LTE in emerging and mature market economies. The 2G network availability in developing market economies and upgrades in emerging and mature market economies are not just about improved communication infrastructure. Significantly, these networks are the pathways to data transfer capabilities – capabilities that directly support internet access through various mobile devices and M2M data transfer. The M2M moment, especially, is the opening of the IoT doors. As recent GSMA research on "The Mobile Economy 2014" explains (pp. 12-16):
While 2G remains the dominant technology in terms of the number of connections, the proportion has fallen from 90% of total connection in 2008 to 67% by the end of 2013. The absolute number of 2G connections fell for the first time in 2013, and this decline is likely to accelerate going forward. […]
The declining proportion of 2G connections reflects the strong growth in 3G and more recently 4G connections. Existing 2G subscribers are migrating to 3G and 4G connections in order to take advantage of more advanced handsets with greater data functionality, as well as the higher data speeds offered by these networks. This is a particular feature of developed markets […].
The developing region is now home to four in every five connections worldwide, and just under 80% of those mobile-connections are 2G-only. […] 2G connections will still account of [sic] the majority of connections in developing markets until 2018.
The number of 3G connections globally has increased dramatically in recent years, growing from just over 600 million in 2009 to over two billion by 2013, accounting for a little under a third of the total global connection base. The 3G base will continue to grow in the future with another 1.7 billion 3G connections forecast to be added by 2020.
The importance of these data connections globally is far more important than simply a telling moment of growth potentials for a subset of semiconductor and electronics industry vertical markets. As stated above, these forecasts signal an upcoming, rapid industry growth and true expansion focused on the widening Mobile Economy. The reasons for widespread growth outlooks are similar to the early PC market boom: the mobile economy is, as GSMA notes (p.16), "device agnostic." The fact that consumers have complete device choice and autonomy, the ability to be completely device agnostic, is an important growth component, also. Device choice in the midst of rapid market growth is the core of healthy supply chain competition. With device choices open, OEMs can create market opportunities and differentiators through their supply chains to give consumers new mobile choices based on their price, feature, architecture, and functional requirements.
Device choice not only benefits consumers, it also benefits wider supply chain growth. With device choice, new competitive market opportunities open across the industry, from component manufacturers to service providers who support OEMs through providing the differentiation opportunities needed to lead in emerging market economies, and in market verticals beyond traditional consumer electronics (CE). Notice that the growth opportunity, significantly, includes connected devices in general, because with mobile broadband and smart device proliferation, the capability is opened for M2M connectivity and IoT expansion, which expands and opens many more devices to the IoT device ecosystem. Consumers will benefit from this IoT device ecosystem expansion because the M2M capabilities will allow them to use their mobile devices to connect functions in their daily lives to monitor events such as health, fitness, purchases/commerce, business, and news and information, and, in more developed markets, consumers will be able to include remote access and control of smart home and smart life functions.
The IoT device market presents many opportunities, as heterogeneous devices and component modules are integrated to meet new demands for use and pricing. Device market forecasts are coming in as high as US $70 billion by 2018 for device makers, as cited in a recent Yole Développement IoT report: "[…] the next five years will be extremely fruitful for device makers […]. This period represents a key window in which manufacturers must seize the opportunity to grab a piece of the IoT business pie." As a further breakdown, Yole offers that "[…] 'we expect the overall IoT market to reach $400B in 2024, with $46B coming from hardware, $59B from the cloud and $296B from data processing', [sic] details Dr. Guillaume Girardin, Technology & Market Analyst, Yole Développement." These device forecasts signal growth for components.
Component outlooks strengthen
Across the board, financial and industry analysts are seeing a significant return to growth for component sectors. Although the first half of 2014 (1H14) saw some turbulence due to softening smartphone demand and slower tablet refresh cycles, extending from two-year projections to four-year refresh cycle forecasts, the expectations now are that 2H14 will see above-seasonal increases for revenue and unit growth for component sectors aligned with IoT and diversifying mobile economy growth areas (e.g., lower-priced smartphones, 3G and 4G LTE devices, emerging market devices, healthcare, automotive semi, and smart life connectivity).
One important aspect of the present growth forecasts is the demand and supply situation in the face of lean inventories and coming off of recently lower CAPEX that has seen a lull in capacity expansions (hampering supply). Memory is one prime component that exhibits the benefits from market dynamic shifts and new demand-supply balances.
The positive position for the memory sector has been a recent top news story. DRAM has undergone a significant supply chain restructuring period, leaving a small set of manufacturers and a shift in strategic outlook favoring price strengthening and supply controls to relieve the intense volatility of the past. ASPs have increased, supply has been held in check, and inventories are in healthy positions, bordering more on potential shortages or supply constraints now that new 2xnm architectures are out and yields are still on the lower side. Utilization, however, is high, and demand is consistent and positive, with increases seen throughout 2H14 due to smartphone DRAM increases from 1Gb to anticipated 2Gb models by 3Q14 and beyond.
NAND demand is similarly strong for the remainder of 2014 and looking forward, due to increased smartphone demand with new models set to come out in 3Q14, but, importantly, the increased SSD forecasts and higher levels (moving from 4Gb to 8Gb) are also likely to impose some constraints. Pricing in the NAND market for these instances is also strengthening in the face of short-term shortages, but the longer-term question is whether new capacity investments will offset the demand-supply balance in 2015 and increase availability, pushing ASPs down again. However, as analysts look to the demand for NAND and eMMC for smartphones and wearable devices alongside of IoT growth, firming ASPs and demand are expected to balance out supply increases. Overall, what the forecasts tell us is that there will be a bit of a bumpy period fluctuating between the economic powers of demand and then supply, but the long-term position is strong due to the expansion of IoT devices and especially wearables.
Memory holds a particularly strong position, in light of IoT forecasts and next to microelectromechanical systems (MEMS) and System-on-Chip (SoC) and System-in-Package (SiP). For one, as PC forecasts are showing a steadying from the recent few years of decline and a new position of understanding PCs not as a "dead device category," but rather one on a longer refresh cycle (much as we are seeing for tablet PCs, especially), memory, particularly DRAM and NAND, will hold a critical baseline of demand that braces the memory component sector. Lower-power memory holds particular growth promise due to demand from wearable device designs, but, significantly, also from healthcare electronic devices, industrial, remote devices, smart life and smart grid, and automotive applications. While today's memory is relatively commoditized, as competition and design innovation increase with IoT expansion, additional and new low-powered memory products will increase, as discussed in EE Times.
In sum, memory has seen significant benefits from the consolidation along the memory supply chain, coupled with current rising demand for memory across a diverse set of end-markets and new demand forecasts for low-powered memory solutions for the widening IoT ecosystem.
MEMS recently experienced its first dip in an otherwise double-digit compound annual growth rate (CAGR). MEMS were part and parcel of the sudden and hot growth in smartphones and SWDs due to the increased feature capabilities offered from gyroscopes, accelerometers, and temperature sensors, among other actuators all grouped in the MEMS component category. IC Insights is forecasting that, after having declined by 1% in 2012 and remaining flat in 2013, "MEMS-based semiconductor sales – sensors and actuators – […] [will] grow 14% in 2014 to reach a new record-high of [US] $8.0 billion, surpassing the current annual peak of $7.1 billion set in 2011 […]. […] MEMS-based sensor and actuator sales [are forecasted to climb] 16% in 2015 to $9.2 billion […]."
IoT growth and MEMS are seen as tightly interwoven; with MEMS, ICs are likely to see the greatest rise of all component categories. MEMS have increasingly met the quality and harsh environmental demands of automotive and industrial semis and equipment, and – with increased SoC and SiP heterogeneous architectures for IoT and especially wearable applications – MEMS capabilities are truly at the heart of what makes a device "smart" from the sensing aspect. What the next generation processors and hardware-software designs are able to provide in terms of application opportunities and acting as the "brains" behind "smart," MEMS ICs are now connecting to human sensory features. Furthermore, MEMS SoC applications are also contributing innovative designs and solutions for low-powered, extremely small device models that are particularly sought after in medical semi, such as in vascular catheters, among other devices.
Another interesting aspect of the MEMS component market is that it truly exemplifies the broad growth dynamics for the wider semi industry anticipated with IoT expansion. MEMS have positively demonstrated that it is possible to support phenomenal growth hand-in-hand with dedicated, application-specific packaging, assembly, and test requirements within accelerated time-to-market bases, as explained in Electronic Design by Matt Apanius, director of the Richard Desich Smart Commercialization Center for Microsystems at Lorain County Community College (LCCC) in Elyria, Ohio.
Applications for MEMS in IoT expansion rapidly multiply as we consider the personal/individual devices, local area devices such as home, office, industrial, and even automotive localized areas, and, finally, wider area applications such as city-wide and distributed areas (see this other Electronic Design article on sensor interfaces in IoT SoCs).
SoCs & processors
Sensors are one of the critical components in the core of IoT device designs; they are among the principal collectors of data from the environment. The IoT SoC also holds the critical functions of local data processing and storage (prior to transmission and through wireless infrastructures) of the data that is to be used, relayed, and accessed in M2M events. What we are seeing currently is a rise in SoC designs that support the demands of lower-power, smaller-form factors, "[…] integrating a specifically designed applications processor for high-end applications or around a general-purpose MCU IC for low-end applications."
Among those supporting next generation SoC designs are Intel, who recently announced a manufacturing agreement with Panasonic to manufacture SoCs using Intel's new 14nm low-power process:
Intel's custom foundry business will manufacture future Panasonic system-on-chips (SoCs) using Intel's 14nm low-power manufacturing process.
Panasonic's next-generation SoCs will target audio visual-based equipment markets, and will enable higher levels of performance, power and viewing experience for consumers.
Intel's leading-edge 14nm low-power process technology, which includes the second generation of Tri-Gate transistors, is optimized for low-power applications. This will enable Panasonic's SoCs to achieve high levels of performance and functionality at lower power levels than was possible with planar transistors.
The competition, of course, is heating up in the SoC processor market, which also includes new ARM-based processors built on the ARM Cortex-A9 core and subsystems that are being developed to support various applications for a diverse set of end-devices in the M2M and IoT ecosystem. Other SoC and chipset solutions are emerging to serve different end-device sectors, which is particularly important as the IoT growth extends to lower-priced smart devices and into emerging and developing markets. These lower-priced devices with selected features are driving market expansion but under highly competitive situations, which means that the competition is particularly intense and solutions are more application-specific.
Beyond the competitive challenges, there are some driving features of SoCs and next-generation processors that cut across applications. One of these requirements, as with memory, is low-power demand in order to meet the needs of IoT devices such as wearables and remotely-located devices. Processors are carrying more workloads as "more data, more sensors, more connectivity and smarter user interfaces all make [smart] devices great to use." A recent article by Paul Garden, product marketing manager for DesignWare ARC Processors at Synopsys, expounds on the new crop of IoT processors:
While general-purpose or standard processors are popular for running applications in deeply embedded systems and subsystems, they typically aren’t optimized for dedicated tasks like those required to support IoT applications.
As a result, achieving the required processor performance can lead to exceeding the power budget of the embedded function, resulting in a bigger package and battery. The paradox happens right at the point where the power requirement for the application exceeds the specifications of the battery, packaging, or both. A new type of low-power processor that is efficient, configurable, and extensible is needed.
Balancing power, heat, processing capability, and increased data loads, among other demands, new SoC designs for processors face a number of challenges which hold opportunities for differentiation in the increasingly-competitive IoT and smart device market.
Ubiquity to change everything, positively
Despite the concerns from 1H14, during which time smartphone saturation in mature markets hit OEMs with slower uptake and decreases rather than volume growth for the first time, the forecast for the semiconductor and electronics industry is strong and sustainable. IoT is entering initial growth phases now that smartphone proliferation is opening the doors to support M2M connectivity and begin to provide early smart life experiences for users.
Growth is on the rise for worldwide semiconductor revenue, as reported recently by Gartner and as reported in the Smith MarketWatch Commentary: "[w]orldwide semiconductor revenue is on pace to reach $336 billion in 2014, a 6.7 percent increase from 2013, and up from the previous quarter's forecast of 5.4 percent growth […]."
Significantly, as Gartner and others such as Citi Research and Credit Suisse have remarked, the global semiconductor growth is supported by a wide base coming from increases in many chip sectors and applications. It is not often that such a positive outlook and DRAM have been mentioned together, but that is the current case, according to Bryan Lewis, research vice president at Gartner:
DRAM is once again expected to lead in 2014 with 18.8 percent annual growth, but other areas are also doing well, including analog, FPGAs, ASICs, and nonoptical sensors. ASICs are driven by Apple, with strong sales of its iPhone expected in the second half of 2014. ASICs will also benefit from the strong ramp of the latest video game console generation, particularly the Sony PS4 and Microsoft Xbox One. Overall semiconductor growth is widespread, with the nonmemory segment growing 5.2 percent in 2014, compared with only 0.8 percent in 2013.
Overall, we see that IoT is a positive and ubiquitous growth driver in and of itself. A new, Mobile Economy is emerging, rooted in the new capabilities offered from truly ubiquitous computing, and that penetrates all market sectors and industries, from consumer to industrial, medical to automotive, and from vascular catheters to home appliances and municipal parking availability applications. Smart life is a product of IoT and the Mobile Economy extends from mature to developing market economies, offering connectivity and data access and analysis globally. Beyond the social, economic, and natural resource conservation improvement opportunities that IoT and the Mobile Economy bring with them, there are real component and market opportunities for the semiconductor and electronics industry that will dramatically change our industry and set us on a new path of long-term, sustainable growth.