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IC firms tread unfamiliar platform terrain

Posted: 03 Sep 2007 ?? ?Print Version ?Bookmark and Share

Keywords:IC firms? product platform? semiconductor industry?

The world's top 20 semiconductor companies are now confronting a whirlwind storm of their own. Leaving behind the familiar and relatively straightforward terrain of unit chip sales, they're navigating a far more complicated world where they must transform themselves to grow.

The momentum toward product platforms and new business models is accelerating. New models are pervasive among companies that manufacture and design semiconductors, as well as among their fabless counterparts. Efficient, economical and versatile platforms are tomorrow's vehicle for delivering high performance.

The platform trend will be the primary growth engine for semiconductor players going forward. If you're not already in this game or preparing to join it, you'll likely be left out.

New profit center
In the semiconductor business, profits used to be made solely from selling chips. Now, the biggest profits are attainable by providing platforms consisting of software and integration services, complete circuit board layouts and design. The impact of this trend extends beyond IDMs and fabless design houses. Key distributors and OEMs will also be affected.

The trend is gaining steam at a crucial time for the industry. Investors are less optimistic about the future value of chip operations, and the industry continues to battle fierce price competition, profit erosion and single-digit growth rates.

The expansion of enhanced-value platforms will be crucial to the viability of the semiconductor industry, letting companies differentiate themselves more broadly than ever before.

The platform serves as the catalyst to enable top-line revenue growth through the influx of new service offerings for chip companies. The requirements for platform, component and application validation offer new service opportunities within the IDM and fabless communities. Furthermore, by driving new software capabilities and optimized solutions in partnerships with value-added resellers and OEMs, platforms increase the revenue potential for companies throughout the supply chain.

The platform-centric world mandates new business models, customer expectations, marketing approaches and competitive differentiation. Without efficient operations, effective communications and well-defined product life cycles, platforms will overwhelm R&D organizations and increase overall product costs, with potential profit effects due to missed market opportunities.

Beyond voice
The transformation is conceptually similar to the shift among traditional phone companies, which have expanded beyond voice to offer cable TV service and broadband Internet connections.

The platform trend is shifting from old semiconductor industry paradigms and value chains to new ones. While the old, constrained value propositions focused on delivering faster, better, less expensive chips, the new ones center on expanding and delivering better value and features while reducing product and manufacturing costs. The old paradigms were about delivering however many chips a customer asked for in a one-size-fits-all strategy. The new paradigms call for integrated platform designs made to customers' orders. And one-off design architectures have given way to standardized design and manufacturing platforms.

One advantage to the platform trend is greater flexibility for both the OEM and semiconductor manufacturer via application/embedded software, for feature functions beyond the silicon.

To meet the demands of the platform business, the transformation among semiconductor companies needs to be operational, across marketing, sales and customer service functions; organizational, encompassing leadership, culture and behavior; and financial, consisting of capital expense and risk management. Senior management must be committed to driving the change and able to build trust within the affected communities.

Driver is software
Software is a key factor in the platform trend. Distributors, OEMs and channel allies take a semiconductor platformi.e. softwareand then incorporate it into the larger consumer/enterprise platform.

During the past decade, software product development went through a transition, forcing companies to think in terms of solutions rather than products. A platform takes the idea of a software solution further, to solve customer problems today, and predict future customer needs and market conditions.

A company that is platform-centric would not only build products based on customer requirements, but also add visionary elements into product development to lay the foundation (platform) for future services. Few software companies today are platform-centric because of the risk involved in predicting where the software industry will go next.

Still, the importance of the software stack is huge for capturing more revenue in OS for handsets and media applications in converged devices.

The platform trend offers a great opportunity for those companies with the brains, courage and heart to move quickly and capitalize on it.

- Scott Grant
Senior Manager, Electronics and High-technology Business Practice
Accenture




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