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More than Microchips—How the Semiconductor Industry Keeps Evolving

Dec. 27, 2019
Here’s a look at how the chip industry is ushering in a new era of tech-driven economic growth.

Major chipmakers are gradually starting to increase spending on research and development. According to IC Insights, an industry market research firm, this growth is expected to continue into the early part of the next decade. That’s a promising sign for the tech sector. Semiconductor innovation is an important precursor to broader technological innovation, which tends to occur in waves.

Moreover, a renewed focus on semiconductor R&D also bodes well for the economy at large. The observation that every company is now a tech company has been a repeated ad infinitum since at least 2013. But each year, this seems to become a more accurate statement. In nearly every industry, venerable incumbents have suddenly found themselves competing with tech-driven disruptors. It fuels sector-wide arms races, and semiconductors are today's big winners.

As more companies rely on technology to enhance the production and delivery of goods and services, the importance of semiconductor innovation continues to grow. Should innovation come to a halt, the global economy would inevitably falter. Fortunately, chipmakers aren’t slowing down. The chips they’re producing today—and the software capabilities they have already developed—will usher in a new era of tech-driven economic growth.

Looking Toward the Future

Semiconductor manufacturers live in the future—they simply have no choice. The typical manufacturing lifecycle takes around two years. After a chip goes to a vertical solution, it takes another year or two of data collection to build the intelligence required to deliver it to the marketplace. Four or five years might elapse before a chip is fully ready for widespread adoption.

The incredible technology powering modern machines is a testament to the industry's foresight. If you want to see the future, you should certainly work with a semiconductor company. The 5G revolution hasn’t truly arrived, yet chipmakers are already thinking about the next generation of 5G.

Based on my experience working with chipmakers on both hardware design and software integration, here are two trends that will determine the industry's long-term direction:

1. Heightened Consolidation

Business-level consolidation is rife among semiconductor companies. We're not seeing as many acquisitions as we did in 2015 or 2016, but reports on industry merger and acquisition activities indicate that the total value of deals completed over the past year are still significantly higher than they were during the beginning of the decade.

As the industry becomes increasingly consolidated, chipmakers are placing greater emphasis on focused integration and collaboration. A big part of that involves integrating the various information technology systems these companies rely on to power the manufacturing process. Moving forward, this will likely become even more important.

2. Seamlessly Integrated Solutions

Another significant trend is a growing demand from historical semiconductor markets for a more integrated offering. Five years ago (and before), manufacturers were almost entirely focused on building microchips as components of larger vertical-specific systems. Today, technology companies expect chipmakers to provide not only the underlying hardware solution, but also fully integrated software systems and business intelligence capabilities to accompany that hardware.

As tech companies continue to look to chipmakers to provide more comprehensive, integrated offerings, the industry’s biggest players will continue to complement existing capabilities. Don’t expect the acquisitions to come to a halt anytime soon. The next evolution of the semiconductor industry is just getting started.

Utpal Bakshi is Global Head, SCSP Vertical, at Wipro Limited.

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