Bob Scarborough and I are here in Penang Malaysia, and have just attended the first day of Semicon Southeast Asia 2016. Along with four other industry leaders, Bob presented at the Supply Chain in High Tech Industry Forum. Bob’s topic was “Optimizing the High Tech Supply Chain in the Era of IoT” – we’ll be posting the content as a blog series in the coming weeks, so stay tuned for that.
Gartner’s Ganesh Ramamoorthy provided an interesting segue to the Supply Chain session with his talk on the 2016 outlook for semiconductor and electronic market. Of particular interest to us was his assertion that this industry will need to change its current thinking in order to remain profitable. In fact, one of his three key recommendations was that the industry will need a new business model, a business model based on recurring service revenue. Gartner is predicting that by 2020, 5% of semiconductor vendor revenue will come from recurring product service charges. Specifically, recurring software and service charges, sold with zero-cost chips – a reversal of the way most chips are currently sold.
To achieve the transition to this new business model, Gartner suggests that new partners will be needed, instead of the traditional OEMs. These new partners will be System Integrators and Engineering Service Providers, who’ll provide vertical industry focused new product designs and re-engineering activities. Gartner’s prediction about these new partnerships is that IoT chip vendors will have at least two system integrators or engineering service providers as their vertical industry go-to-market partners by 2020.
This is of great interest to us here at Tensoft – we have observed the rise of new monetization models for the semiconductor and electronics industry (be sure to check out Mike Chadwick’s recent interview on this topic). The writing is on the wall: the IoT end customer market will be driven by systems integrators – for custom and market-based solutions. As a result, this change to the semiconductor value chain will drive change to semiconductor go-to-market models and industry demand planning.
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