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IoT’s Impact on the Supply Base and Purchasing

Sept. 19, 2016
The growth of the Internet of Things is contributing to semiconductor industry consolidation.

Many semiconductor and other component manufacturers see the Internet of Things (IoT) as an opportunity to grow sales at a time when traditional customer segments such as computers and smartphones are weakening.

There is no question that the connection of more products and systems to the internet is driving demand for a variety of semiconductors and other parts, including sensors, wireless semiconductors, microcontrollers, and power management ICs among others. In fact, researcher IC Insights recently issued a report that said that chips used in IoT applications will increase from $15.4 billion in 2017 to $29.6 billion in 2019, a compound annual growth rate of 19%. The overall semiconductor market will increase an average of just 3.2% per year during that same time.

While IoT may have a positive sales impact for semiconductor suppliers, it will have a less-than-positive impact for semiconductor buyers because it will contribute to further consolidation in the semiconductor industry. More mergers and acquisitions mean fewer supplier choices for buyers, which could lead to higher prices for some parts.

Acquisitions on the Rise

Over the past several years there has been a dramatic increase in the number of merger and acquisitions in the semiconductor industry. “The Internet of Things is one of the drivers of the acquisitions in the industry,” says Rob Lineback, senior research analyst for IC Insights. “This year it looks like it’s going to be the second-largest acquisition year.” The most number of acquisitions occurred in 2015.

Some chipmakers are trying to bolster their product portfolios by acquiring other semiconductor companies that make chips used in IoT applications. An example is the recent announcement that Renesas would acquire Intersil. Intersil makes a variety of semiconductors including analog chips, power management ICs, converters, audio and video chips among others, many of which can be used in IoT applications.

Renesas said the continuing growth of IoT was one of the reasons for buying Intersil. “Renesas is the largest microcontroller maker in the world and is trying very hard” to stay number one, says Lineback. One way is by acquiring a chipmaker that has a lot of products needed for a growth segment such as IoT.

 “A lot of companies want to make sure they have all the parts so customers don’t go to someone else,” says Lineback. Chipmakers want to provide a “platform solution so if you have everything in your own portfolio and can offer the whole solution to a company, you're more likely to win,” he adds.

New Customers for Components

Supply-base consolidation and fewer choices for buyers won’t be the only impact of IoT on purchasing. IoT will result in more buyers purchasing electronic components as IoT expands into applications that did not have much or any electronics content. Buyers in non-electronics companies may find the need to qualify new suppliers because their companies are developing new products with IoT functionality. Buyers who had purchased plastic, metal, or mechanical parts may find that they now have to find capable suppliers of microcontrollers, wireless ICs, power management ICs, and other parts used in IoT applications.

In other cases, buyers who may have purchased low-value discrete semiconductors will have to purchase more sophisticated chips such as wireless and communications chips because of IoT.

One example is home appliances such as washers, dryers, and refrigerators. Those products had some electronics content, but will need more if they are to be IoT capable.

“Buyers working in those areas are going to be dealing a lot more with semiconductors than they had before and may be dealing with some companies that they have never dealt with before,” says Lineback.

While IoT will impact purchasing, it will also impact the chip technology development. Lineback said semiconductor companies are under “a great deal of pressure” to develop chips for IoT that can be used in a small space in a product and run on very low power.

For instance, with wearable electronics such as a fitness device, semiconductors that provide connectivity have to be crammed into a limited area in the device. “That connectivity has to fit into a small area and not increase the size of the device,” says Lineback. “Nobody wants to make their system bigger because it's going to connect to the internet. They want to make it smaller, actually.”

So chip companies need to develop multichip packaging type technologies for chips that have low-power consumption and a lot of wireless connecting capabilities to handle a wide range of standards to make the connection, he says.

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About the Author

James Carbone | Freelance Writer

Jim Carbone is a freelance writer covering the electronics supply chain. A veteran journalist, Jim was a writer and editor for Electronics Purchasing and Purchasing magazines for 21 years. He covered electronics distribution, semiconductors, passive components and connectors for the magazines. He also wrote extensively about the strategic purchasing strategies of electronics OEMs and electronics manufacturing services providers. Before covering the electronics industry, Jim worked as a reporter and editor for United Press International for nine years. He started his career as a newspaper reporter and photographer. Jim is a graduate of the State University of New York at Albany.