The semiconductor industry began when a trio of Bell Labs / AT&T researchers first successfully demonstrated the capabilities of a transistor in 1947. Their findings were published the following year and they would eventually go on to win the Nobel Prize.
Between 1950 and 1980, semiconductor companies became more vertically integrated.
Companies like Texas Instruments, Fairchild, and Motorola designed, fabricated, and packaged their semiconductor chips for consumption largely by systems companies.
By 1970, the industry faced its first wave of deconsolidation, as new entrants like National Semiconductor, Intel, and AMD stole market share from dominant industry players by targeting new applications like minicomputers, microcomputers and eventually, PCs. They did this using new microprocessor technologies.
The development of the fabless/foundry model revolutionized the industry and lessened the need for vertical integration by creating value in specialization.
Strategic options for semiconductor companies
The rapid transformation of end markets has threatening to disrupt the lives of every semiconductor company. Semiconductor companies must now get creative to maintain their growth trajectory or risk becoming commoditized by their customers. They have three competitive plays to capture value as more businesses bring their hardware development in-house.
Semiconductor companies must now get creative to maintain their growth trajectory or risk becoming commoditized by their customers.
Moving forward: what semiconductor companies must consider today
Invest in ecosystem to understand the customer
Semiconductor companies have traditionally been B2B businesses and somewhat abstracted from the end-customer.
Invest in right-skilling engineering workforces
Semiconductor companies need a workforce trained in software engineering, AI, big data techniques in addition to core engineering skills.
Free up capital for reinvestment
Business models are evolving from solely relying on chip sales to providing an variety of products and services that can uncover fresh revenue streams.
Major trends driving vertical integration
Four trends that have heightened the demand for system integration and have shifted the balance of power in favor of delivering targeted end-customer solutions:
Explosion of data and the dawn of edge
Data storage and processing at the edge required the co-optimization of data center and edge hardware, middleware, and application software.
5G created completely new use cases for consuming data and insights.
The rise in autonomous cars and electric vehicles has been one of the primary drivers for the growth of the semiconductor industry.
Artificial intelligence and machine learning
Led to a surge in demand for highly specialized accelerators.