February 25, 2015, anysilicon
As technologies advance, the semiconductor industry and its traditional business model face a myriad of ongoing complexities demanding an ever accelerating state of operational agility. The electronics and healthcare markets are experiencing unprecedented change through mass market consumerization and global adoption. For most chip companies, gone are the days of long run product cycles and the timeline to secure a design win may exceed the lifetime ramp up (and ramp down) of an end device such as a smartphone model. And IC companies, whose end customer optics can be hampered by degrees of separation through channels of distribution, are increasingly adopting creative strategies to diversify volatile revenue cyclicality1.
A notable trend Tensoft is witnessing firsthand is the evolving business and monetization model from pure play integrated circuit sales to various complex products and services. Growth categories such as Internet of the Things (IoT) have morphed the functionality of an individual chip to a multi-chip module or system-on-chip (SoC) to support multi-sensing functions2. As a result, early stage, single product line offerings are frequently traded up to highly targeted end products analogous to the concept of starting with one wafer and ending with multiple finished goods and outcomes.
Design In vs. Design Win – Early stage chip companies may offer technologically superior solutions to competitive incumbents yet may lack an established track record or the financial size OEM’s require in supplier relationships. In business the proverbial pivot is often determined by default and not by design. A chief example was a start-up client targeting the wireless IC market who experienced difficulty achieving qualification with industry stalwarts. Without attaining design wins, the conventional sales model was deemed at risk. This customer with the support of their investors recalibrated to a design in strategy transitioning to a wireless OEM to effectively create a market for their chips. They found winning shelf space with big box retailers and subsequent consumer acceptance easier than socket adoption – and were eventually rewarded via acquisition by one of the largest market leaders.
Vertically Integrated Provider – Semiconductor companies of all sizes are blurring the lines of discrete finished goods merging in traditional software and SaaS companies while many software and hardware companies are acquiring semiconductor lines to expand differentiation. One of Tensoft’s clients was a biometric IC manufacturer who rapidly gained market share through undertaking a systems based approach. Onboarding a tech complementary software company coupled with a solution sales approach resonated within the market and boosted margins, created a recurring revenue stream and led to a successful exit to Apple, who alone has purchased multiple semiconductor companies over the past three years.
Firmware / Software Monetization – Hardware engineering is associated with integrated circuit development. However, for every hardware engineer on staff typically two software engineers is the new normal. IP and coding provide essential functionality and relevance only increases in lockstep with the advance of Moore’s law. Yet historical pricing models and competitive commoditization have subdued the opportunity for direct monetization of the software value add (excluding direct IP licensing) much to the chagrin of top industry executives3. Newer entrants have begun to challenge the status quo seeking subscription fees for ongoing code updates to their core technology as the attractiveness of creating repeatable revenue streams garners greater business predictability and increased market valuations.
As a SaaS ERP provider at the intersection of semiconductor business processes and software automation, the article highlighted three scenarios embraced to compete and succeed in an environment known by the mantra “Disrupt or be disrupted.” Evolving go-to market operations and revenue models and instituting unique business plans including a moat offering has paid off for multiple Tensoft clients willing to embrace the challenge.
1. EBN interview with Steve Sanghi, Microchip Technology CEO
2. AnySilicon blog, “If Your Chip is Not an SOC, It Soon Will Be”
3. 2014 Global Semiconductor Alliance Executive Forum, CEO Panel discussion –