Two months ago, I wrote about the wave of consolidation that has taken the semiconductor industry by storm, causing a significant change in the way silicon chips for consumer electronics are manufactured.
Mainly driven by three factors (the decline of the desktop PC market, the commoditization of mobile devices, and the emergence of automotive and IoT), this consolidation is creating four distinct categories of chip makers.
The monolithic semiconductor vendor
Less than five years ago, the semiconductor market was divided between a flurry of large, medium and small chip makers. Today, there are only four to six large semiconductor vendors that produce mainstream chips for mobile and embedded devices.
These companies have vast engineering resources dedicated to SoC bring-up and software development, and invest heavily in proprietary or custom CPU or GPU architectures.
The segment-oriented supplier
No matter how big they get, mainstream companies will always struggle to service specialized markets.
This is where a more segment-oriented semiconductor company steps, focusing on the design of complete solutions: modules, subsystems, or complete reference products.
Renesas and Texas Instruments dominate the automotive or embedded market
These companies tend to range from big organizations like the ones above to smaller outfits that operate closer to more particular applications such as automotive, healthcare, home automation, industrial IoT/M2M, microservers or networking.
The OEM turned chip maker
There is also an increase in OEMs that open up in-house design centers or even own foundries; the most famous examples are of course Apple and Samsung but the list includes Amazon (Lab126), LG, or Huawei (HiSilicon).
Samsung recently became the world’s fourth largest mobile chip maker
These companies rely on the synergy between custom-built hardware and proprietary software to differentiate. The results are branded products defined by a unique and consistent user experience that spreads across multiple segments (e.g. mobile, automotive, home entertainment, wearables etc.)
The ODM/OEM + design house partnership
Finally, there is an emerging partnership model of OEMs and ODMs outsourcing chip manufacturing to design houses or semiconductor companies. This is a very important trend for many emerging markets where reference products might be designed by a chip company but sold on behalf of an operator and/or OEM brand.
The partnership mirrors the vertical model of the mobile market, but spreads the associated costs between multiple companies, relying on high volume shipments for success; a recent example includes Xiaomi and Leadcore.
Created over three decades ago, the current semiconductor manufacturing model seems ready to be disrupted again. The next 2-3 years should give us a better picture of the companies that will lead the next decade of innovation.