The future of the semiconductor industry is the Internet of Things

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Semiconductors and Internet of Things

As semiconductors are essential to the production of microelectronics, they occupy an indelible place in today’s technology-dominated marketplace. Indeed, worldwide semiconductor sales in 2018 are expected to exceed $463 billion. But as with the rest of the tech sector, the semiconductors industry is now in the midst of a major paradigm shift.

After serving as a guiding principal for decades, Moore’s Law is increasingly becoming an antiquated notion. The research and development costs associated with manufacturing 7 nanometer (nm) chips have become prohibitively expensive for all but the world’s largest semiconductor fabricators. And with 5nm R&D costs expected to double those of 7nm, the issue of rising costs is only going to get worse.

Additionally, the wave of mergers and acquisitions (M&A) that buoyed the industry since 2015 has recently peaked. While the average value of a semiconductor M&A deal was worth $99.8 billion in 2016, it dropped to $27.7 billion in 2017. The reality is, the most innovative looking firms have been acquired and the market now expects the industry to start laying the foundations for the future of electronics.

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And it’s becoming increasingly clear that the semiconductor industry’s best bet for the future is the Internet of Things (IoT).

Semiconductors and the Internet of Things

Whether it is light bulbs, children’s toys or vehicles, more and more products are being connected to the Internet for the sake of convenience and cost-effectiveness. And because there is a high level of rapid data exchange needed to make IoT tech function, a multitude of small, durable and complex microchips will be needed to make everything work.

However, because of the need for individualized chip design, semiconductor makers need to be judicious about their areas of focus. That means having a clear idea about which types of IoT tech are nearest to reaching the mass market.

One such type is 5G enabled mobile devices.

The 5G Revolution

As the standards for the fifth generation of mobile phone technology have been finalized, the major wireless carriers are almost ready to launch their 5G networks. With connection speeds faster than the previous generation, 5G will be a game-changer.

Carriers like Verizon and AT&T are advertising 5G service as early as next year, making the need for 5G compliant hardware manufacturing imminent. However, as 5G technology is dependent on high-frequency millimeter waves to transmit data, 5G smartphones, tablets and mobile hotspots will need chipsets to access the network.

As such, semiconductor companies bringing quality 5G chipsets to the market will reap considerable profits by partnering with smartphone, tablet, mobile hotspot and laptop manufacturers.

Notably, Verizon also intends for its 5G service to be a home Internet solution, with a specific eye toward it powering IoT smart home devices. And as it happens, the smart home market is also an area of IoT that offers significant growth opportunities for semiconductor manufacturers.

The Explosive Growth of the Smart Home Market

By 2022, it’s forecasted that the U.S. smart home market will exceed $123 billion. As consumer spending on smart home devices in 2018 is estimated at $56 billion, it’s a sector that is anticipated to experience explosive growth within the next few years.

The adoption of smart home tech has been driven by the two tech giants that dominate that market, Amazon and Google. Around 20 percent of the U.S. adult population uses smart speaker technology made by these two companies.

And as that percentage grows, appliance, home security, thermostat, and lighting fixture companies will need to ensure their products can sync with the leading voice command programs. Given the explosive growth potential of the smart home market, conscientious semiconductor firms should aim to land contracts with any one of these companies.

Another area of IoT that is forecasted to experience explosive growth in the near future is the automotive sector.

Smart Cars will Need Smart Security

As integrated GPS systems, mobile hotspot functionality, concierge services, and streaming media applications are now standard in the latest models of cars and trucks, IoT has already had a significant impact on the automotive industry.

And with IoT-related automotive integrated circuit revenues expected to go from $18.4 billion in 2016 to $34.2 billion in 2021, the connected car market shows no sign of softening. So, how can semiconductor manufacturers take advantage of this lucrative trend? By investing in smart car security.

Key auto industry players such as Volvo and Tesla have indicated that self-driving cars are a major priority. As such, it’s now estimated that by 2040, 95 percent of new vehicles sold will be fully autonomous. But to overcome regulatory challenges and ensure consumer confidence, smart cars will need to be protected from hackers.

Experts have argued that to prevent unauthorized access, driverless car security will need a robust hardware and software solution. Chipmakers that direct resources to developing that security solution, ideally under a silicon-as-a-service model, can potentially ensure their profitability for decades to come.