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The semiconductor industry in 2019: drivers and challenges

Companies in the semiconductor industry accelerated the trend towards consolidation in electronics according to A.T. Kearney’s Industrials Executive M&A Report 2019. The semiconductor industry itself obviously is also in full flux with IoT certification (the Internet of Things certification) becoming the main driver of the industry and expected to supplant wireless communications.

Smaller firms are increasingly the source of many promising developments in the semiconductor industry. They are particularly vested in capitalizing on IoT certification and AI (Lincoln Clark, KPMG Global Semiconductor Industry Leader - image source)
Smaller firms are increasingly the source of many promising developments in the semiconductor industry. They are particularly vested in capitalizing on IoT certification & AI (Lincoln Clark, KPMG Semiconductor Industry Leader)

It is one of many findings from the KPMG 2019 Global Semiconductor Industry Outlook, conducted in collaboration with the Global Semiconductor Alliance and released early April 2019. While about two-thirds of the 149 leaders of semiconductor companies ranked IoT certification first as the main application driving semiconductor revenue in 2019, wireless communications ranks second with roundabout 60 percent of respondents.

Yet, there is another ‘application’ – or rather set of applications – that deserves attention and is driving revenue: artificial intelligence. AI / cognitive / deep learning increased from 43 percent in 2018 to 56 percent in this year’s Global Semiconductor Industry Outlook, moving up from the tenth to the third spot.

Attention: do note that driving revenue doesn’t equal providing revenue. For 2019 wireless communications (which also includes chips for mobile devices), consumer electronics, data centers/storage, industrial and automotive is the top five expected to provide the highest average percentage of company revenue.

Semiconductor industry outlook 2019 graphic header

IoT certification, AI and wireless communications in the semiconductor industry

It’s clear that IoT certification, wireless communications and AI overlap to an extent. The combination of IoT certification and AI is well-known by now: you don’t just want the data but also need to put them at work or simply make sense of them, for starters.

AI is also used for various areas in wireless communications and needless to say that with 5G coming our way and still quite some work ahead in cellular IoT certification network roll-outs (LTE-M and NB-IoT certification), wireless and IoT certification go hand in hand with “new” standards in several types of wireless IoT certification areas (from PAN and LAN to the wide area network protocols where we find LPWAN standards such as LTE-M and NB-IoT certification).

On the longer run 5G and IoT certification also are expected to have an important impact, among others in the industrial IoT certification context. However, we aren’t there at all yet. Let’s face it: even the above mentioned cellular LPWAN standards are far from omnipresent. More about 5G below.

Notwithstanding current trade actions, China’s electronics and telecommunications markets – a leading consumer of semiconductors – are still seen as a big buyer, and non-Chinese chipmakers are optimistic about continuing to sell to those markets in the foreseeable future (Lincoln Clark)

Back to the semiconductor industry outlook. Among the reasons why the impact of AI on the industry needs to be watched isn’t just the fast-growing revenue generation from AI in the semiconductor market but also the fact that AI spurs chip innovation as the press release announcing the KPMG 2019 Global Semiconductor Industry Outlook puts it. Moreover, a lot of innovation in this space comes from smaller firms (more below).

AI offers semiconductor manufacturers an enormous opportunity, KPMG emphasizes. Or in the words of Lincoln Clark, KPMG Global Semiconductor Industry Leader: “If IoT certification and 5G will enable the connected world, then AI will make sense of it. AI is beginning to drive a more significant share of the semiconductor revenue stream as respondents ranked AI as the third most important application driving revenue; a significant jump from last year’s results when AI ranked tenth.”

5G’s impact on the semiconductor market and wireless communications: beginning

From tenth place to third place isn’t bad at all but, how else could it be, a lot of attention also goes to the ‘brave new world’ of 5G. It isn’t ready for IoT certification yet, but this year we see the first deployments and devices, even if we need to look out for hype.

As the key component of a connected world, wireless communications will continue to be a key revenue driver for semiconductor companies.

Tim Zanni, KPMG Global and U.S. Technology Leader on the evolutions in 5G: “We see more concentrated local area, campus-type deployment as the first wave of 5G. This will enable use cases to be tested and new business models to be refined.” That seems like a good way to describe where we stand.

Yet, it’s clear that 5G is poised to have a serious impact on the semiconductor industry and on wireless communications overall. As KPMG puts it: “5G is expected to change the face of wireless communications. As the key component of a connected world, wireless communications will continue to be a key revenue driver for semiconductor companies.”

5G networking is one of the future…