Written by Lisa Ann Cairns, Ph.D.
In today's market, the diversification of end-devices includes diversification across the gamut of leading-edge components. Diversification expands the set of components that are considered leading-edge because of more CE end-device use-case demands. These market expansions are good news for wider industry growth and improved competition (and resulting innovation and demand uptake).
Demand for electronic components has historically been driven by the latest generation of computing technology and new releases of a relatively small set of user-focused end devices (consumer, enterprise, and industrial). But the drivers of demand have grown more complex in recent years. This complexity is due not only to the increasing number of end-devices and end-system expansions (into which semiconductors and electronic components are destined), but also to the expanding set of consumer electronics (CE). The CE expansion comes from the regional and economic demands of global consumers, most of whom are purchasing their first smart device as their only computing device and their gateway to the internet.
The complex global market doesn't stop there, though. Adding to the challenges today, and clouding the supply chain picture, we see new shifts among long-standing pillars of our industry. These shifts come from the impact of more users adopting cloud services to handle their computing needs. As a result of the shift to the cloud, enterprise and personal desktop PCs are no longer mainstays for refresh cycles.
This diversification of historical component demand drivers, in our view, makes awareness of a greater range of market dynamics important. For the immediate future, there are several specific market dynamics that we see impacting the demand for electronic components: (1) the diversifying landscape of devices, particularly for CE and personal computing; (2) the rise of new component markets designed particularly for automation (building and industrial), medical and health devices, automotive safety and infotainment, and a rise in embedded IC demand; and (3) expanding geographic markets, especially a ramping-up for emerging markets, with future strategies being set for developing markets. These three major shifts, among others not listed, are directly changing the global semiconductor supply chain and the focus of component development because they represent shifts in demand.
Smart tech extending
The continuous device and component refresh cycle in our industry spurs new demand. Demand is pushed (or enticed) by presenting a next generation of computing and electronic devices, supported by next-generation components. This refresh cycle has long been the mainstay of our industry, and, in many respects, it still is the norm. What is changing on the consumer side is the extension of consumer electronics into new use-case domains. These new use-cases for CE (especially smartphones) include expanding portable entertainment and information, data manipulation, and greater demand for data collection to support individual health and fitness information demands. These consumer use-case demands drive the trends in component design and electronics manufacturing – trends that focus around growing the new "mobile economy."
The device and component growth in the mobile economy shifts the supply chain and industry networks at a deep level. The core of today's computing events has shifted away from desktop and laptop PCs to mobile computing through Smart Wireless Devices (SWDs) such as tablet PCs, hybrid devices, and smartphones. These new mobile SWDs for CE are now users' hub to control and engage with other devices nearby or remotely. For example, SWDs are now the control point for many smart home applications and devices or appliances (TV, climate/HVAC units, lighting, security systems, audio-video, etc.); for fitness and health data evaluation (collection points, analysis and monitoring from wearable technologies); and for providing telecommuting opportunities and remote computing application access for business.
As EE Times reports, concerning recent data from a Consumer Electronics Association (CEA) study, consumers' preference falls squarely for smartphones in terms of "near-term purchase intent." The importance of this finding is that the demand for smartphones as the primary device of choice – users' new core computing and mobile device – in turn refocuses the design and manufacturing of other devices. Devices that are impacted by this refocusing of what is the central device, previously the PC, changes how other devices and their constituent components are designed. One key example of this refocus in design is seen in the growing medical and health & fitness device field. Rather than being designed to connect in a medical facility or to only collect limited data for fitness, they are now being designed to leverage the ability to increase the collection of a wider set of data, which are first uploaded to individual users' smartphones and then pushed securely outward from there, as appropriate. In this manner, how smartphones are being used today – as users' central computing hub – is changing the focus of the component designs dedicated to these devices. It is also changing the array of end-devices with which smartphones network.
Leading-edge chips support complex tasks
In today's market, the diversification of end-devices includes diversification across the gamut of leading-edge components. Diversification expands the set of components that are considered leading-edge because of more CE end-device use-case demands. These market expansions are good news for wider industry growth and improved competition (and resulting innovation and demand uptake). We are in a period of increasing end-device categories into which a wider range of components is directed.
Specifically, one of the leading component differences we see in the top-selling end-device market is that smartphones are in the core architecture. Last year, Apple was the first to release 64-bit chips in conjunction with a start on the software architecture platforms to take advantage of the chip capabilities. The increased demand of smartphones’ and tablet PCs’ use-case scenarios by consumers and enterprise users pushed this demand for new core architectures. Now demand focuses on the requirement for multitasking, immediate and simultaneous event/data management, and analyses and similar complex tasks. As a result of this new demand, there is follow-on demand for the extension of software optimized not only to handle these tasks, but also to handle the new 32-bit and 64-bit chips and to perform the tasks better. While today's leading-edge architecture is definitely 2x-nanometer (namely 28nm and 20nm), 64-bit chips, "32-bit chips will still provide sufficient performance [through] 2018," according to Sravan Kundojjala, author of a new report from Strategy Analytics.
Considering the smartphone leading-edge component set more closely, we see the increased competition for improving 3D, FinFET, integrated sensors, LTE-A, NFC, and related technologies into single-chip solutions at the smaller architectures. These new cores represent significant departures for the smartphone market; the design challenge is to integrate into these cores the most advanced set of functional capabilities. In turn, these complex, leading-edge chips represent a component solution for top-tier smartphones and tablet PCs. The design path for leading-edge chips is, therefore, continuing in the framework of the commoditized solution set for the leading-edge SWDs. When core technology is integrated into single packaged solutions, the ability to pick and choose component solutions, to balance costs and features for end-devices, is changed. These leading-edge cores are, therefore, the leading-edge solutions, and are directed (often only) into leading-edge smartphones and tablet PCs.
Beyond the leading-edge, highest-priced SWD solutions, there is a holding pattern in component designs where the tight core integration is not being uniformly adopted. These chip solutions are being designed for the next-tier (versus top-tier) end-devices, a market where the competition is the tightest right now, particularly in emerging economies. OEMs and device EMS companies turn to local supply chain solutions providers to build end-devices with the functionality demanded in these local geographies, but at the lower cost necessary to entice high-volume demand in these less-affluent markets. This combination of challenges for these manufacturers and OEMs is further drawing a line between commoditized and individuated smart device designs, and, hence, the supply chain supporting the very different components being designed to go into these end-device categories.
Beyond commoditized smartphones – local markets drive their own chip demand
The growth of very different demands for CE devices globally pushes new diversification of the device markets and rapid market expansions. The fast-paced changes and new demands open doors to an equally rapidly growing set of new, regional competitors. In this new marketplace, created through demand shifts, the increased, tight competition brings to market a wider array of devices to meet a wider set of demand classes. The new devices, matching the new users' demands, are, importantly, distinguished by price, features, and local network compatibilities. As a result, we see CE trends and demands addressed more on local bases, rather than larger commoditized bases (local/regional solutions with attention to pricing tiers and local needs, versus one global solution with some model and pricing options).
While there is device diversification across regional and local markets based on features and pricing, there is also the other side of the diversification event, which is only just coming to light: namely, a drop in larger sales volumes for commoditized devices, a market situation that improves margins for device manufacturers and OEMs. The shift away from commoditized smartphone strategies to the present demand situation for lower volumes of more-targeted devices with special demographic markets means that OEMs must contend with lower margins for devices because each device cost is higher. These pricing and margin pressures also carry supply chain pressures, because more components are in higher demand simultaneously. As a result, what constitutes "leading-edge" in terms of demand for components and/or devices really depends on what market (device and/or region) you're talking about. This is a tough, strategic challenge that OEMs globally face. There is a requirement to balance local demands with commoditized (smartphone) options. It is in making these device design choices that the strategic choice is made regarding what will constitute "leading-edge components" in the devices. Hand-in-hand with these strategic choices is the next evolution of the global semiconductor and electronics supply chain. We continue to design under the challenges of razor-thin margins, rapidly shifting cycles, and a growing demand for locally-based distributors with deep local knowledge and global services to provide the necessary agility to respond to sudden market opportunities.
Smart device strategies shifting supply chain demands
As we are seeing in the marketplace, not all new end-devices garner equally robust demand. For example, while Samsung held the bulk of global market share for a number of years, challengers in local markets (particularly in Asia) now provide feature-rich, competitive smartphones at significantly lower prices. These competitors compromised Samsung's regional position, dropping this global OEM's company-wide sales in smartphones and tablet PCs. Shifts in consumer OEM loyalty and the ensuing price competition also shift the pillars of the global electronics industry and supply chain connections.
What is leading-edge for one market group (whether geographically, demographically, or economically partitioned) is not translating across different market groups. The competition in the smart device market is no longer about first-mover consumers in developed economies; these users are primarily in white-collar positions and demand Bring Your Own Device (BYOD) choices to balance private and business uses for their smartphones or tablet PCs. The ways in which device expectations are changing, from consumers to business users, enterprises to industrial use-case demands, is dramatically changing the competitive OEM landscape. Today's demanded feature drives the expansion of what exactly is "leading-edge." In response, we see the shifts along the global supply chain to focus on regional and local capabilities and expanded service offerings. Local knowledge and agility are among the top demands by industry OEMs and EMS providers as they work to realign their chip and end-device strategies. Today's semiconductor and electronics companies see demand for a new set of use-cases, from diversifying device and regional markets. In response, new component solutions now divide along commoditized versus individuated strategies to meet the new, specific demands from a diversifying and rapidly evolving set of market sectors.