Semiconductor Transformation Study

State of the semiconductor industry

In the past year, the semiconductor industry has received attention from manufacturers, governments, and even consumers, as many markets are citing shortages of semiconductors as their main growth and supply constraint.

Yet transformations in the semiconductor industry were not triggered by the pandemic. Many semiconductor companies already had transformations underway; the pandemic just accelerated the process. We wanted to explore what was driving these efforts to help our clients understand how they compare against their peers and set themselves up for success.

The Semiconductor Transformation Study (STS) revealed four primary characteristics of transformations in the semiconductor industry: dynamic disruptions, new frontiers, innovative models, and digital proliferation. 

Dynamic disruptions

Semiconductor leaders are navigating an increasingly complex and unpredictable market environment, compounded by various new technology catalysts. This creates a phenomenon characterized by continuous and overlapping disruptions, which necessitates alignment around a transformation North Star.

 With the ongoing dynamic disruption across the semiconductor industry, companies should establish a clear end-state vision for their transformation and not try to jump ahead without a complete and aligned plan. This is especially true when the transformations require changes to operating models, the adoption of new digital capabilities, or new talent capabilities. 

New frontiers

Sales and marketing organizations inside semiconductor companies are often pushing the transformation agenda, which is largely focused on expanding into new technology-driven markets and gaining a competitive edge and market share.

The key technologies driving business transformation include integrated artificial intelligence, edge computing, 5G communications, and IoT products and/or services. These technologies may represent not only the end markets they are expanding into, but also the capabilities that will support their expansion.

One surprise was that, while growth is a top priority, customer experience did not rise to the top of the industry’s priorities. This should be a watch item for the sector, as customer experience is a critical element in acquiring new customers in new markets.

Innovative models

Half of companies surveyed plan to launch an integrated or bundled solution for customers or to offer more “X-as-a-service” instead of the chip industry’s traditional one-time product sales model. The implications of these shifts are profound, given how these new offerings change the way companies go to market, engineer products, and generate revenue.

Nearly half of respondents plan to introduce usage, subscription, or outcome-based revenue models. Even “hardware” companies, including those producing chips and equipment, are forging paths toward nontraditional models. The software industry began using these approaches some 10 to 15 years ago. This has worked well for many software companies over the past two decades, leading to growth, profits, and high valuations supported in part by these recurring revenue models, which have accounted for the software industry’s biggest shift during that time. The same could be true for semiconductor business models. 

Digital proliferation

Semiconductor companies seek to substantially change their operating models in their transformations by advancing their digital footprint, skills, and collaboration capabilities to support an expanding portfolio of products, offerings, and markets.

While semiconductor companies are focused on winning and providing solutions to enable advanced digital technologies like artificial intelligence and edge computing, they should deploy related technologies internally to provide capabilities (data visibility, advanced analytics, and process automation) essential to executing their transformations.

For the semiconductor industry, product development stands out as the most critical capability. Given that sales and marketing are often leading the charge, the goal may be more focused on making product development more responsive to changes in the market: getting the right products to the market at the right time.