The whole industry is growing, but which opportunities stand out, asks president of America II, Brian Ellison, and which companies are best placed to benefit?
In its most recent report, the Semiconductor Industry Association (SIA) has revealed that worldwide sales of semiconductors have reached $84bn for the second quarter (Q2) of 2015. First-half 2015 sales were 3.9 per cent above first-half 2014.
SIA president and CEO, John Neuffer, explained: “Macroeconomic headwinds and softening demand have slowed global semiconductor market growth somewhat, but the industry still posted its highest-ever second-quarter sales and remains ahead of the pace of sales set in 2014, which was a record year for semiconductor revenues. The Americas market continues to post solid year-to-year sales increases and the global market has now grown on a year-to-year basis for 26 consecutive months.”
The World Semiconductor Trade Statistics (WSTS) has also released its updated 2015 forecast for the semiconductor market mid-Q2 2015. WSTS anticipates the world semiconductor market to show a moderate growth of 3.4 per cent to $347 billion in 2015. All major product categories are expected to show positive growth. Projections for 2016 show growth of 3.4 per cent over 2015 totals to $359 billion. The worldwide semiconductor market for 2017 is forecasted to grow by 3.0 per cent to $370 billion.
It’s clear that the general trends are pointing distinctly upward, but in exploiting this growing market, some trends seem more interesting than others.
Specifically, the projected revenues from internet of things (IoT) devices continue to be astounding. IC Insights’ recently published 2015 IC market driver report predicts that IoT revenues will grow by 29 per cent in 2015 to $62.4bn. Total IoT-related revenues are expected to rise by a compound annual growth rate (CAGR) of 21.1 per cent from 2013 to 2018, to $104.1bn.
In order to align with the enormous IoT opportunities however, a distributor needs to exhibit a fairly specific blend of characteristics. Firstly, they need to be able to satisfy high mix low volume (HMLV) requirements as the majority of highly application-specific IoT devices are produced in low numbers. Secondly, they need to be able to support lower-margin business, since a prerequisite of wide penetration is that the billions of IoT devices are reasonably priced. Thirdly, they need to be able to engage in stock-holding and inventory management as the majority of organisations looking to design IoT devices are medium-sized tier two and three organisations, and are thereby more exposed to movement in the market.
It therefore seems clear that any distribution business that can adequately align with these needs will be better-placed to take advantage of this exploding market to drive industry growth during the ‘good times.’
What’s more, within the more general picture of growth, a massive amount of this is likely to be undertaken by the ‘middle tier’ companies of around $250M to $500M. The interests of such companies, which have an enormous amount of money to spend and who are disproportionately represented within this ‘drive to IoT,’ are currently under-represented by first tier distributors. Any company able to address this trend, in my opinion, will be in a much better position to exploit the growing market.