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7 growth areas for chip industry

Posted: 18 Jan 2011 ?? ?Print Version ?Bookmark and Share

Keywords:global chip industry challenges? semiconductor market turnaround?

The global chip industry successfully hurdled the great recession, helped by its resolve to learn from past mistakes. It took note of plummeting demand and consequently trimmed down supply quicker and more aggressively than in previous slowdowns.

This was the good news. The bad news is that many companies in the industry continue to struggle with a wide range of issues including excessively narrow focus on engineering chips rather than deeply understanding end markets now and going forward, inefficient global operations and insufficient innovation.

To overcome these hurdles, capitalize on the market upturn and build momentum and growth, what should industry leaders do now? This article tackles that question head on. Drawing upon several of Accenture's industry research initiatives and associated analysis and insights, as well as deep industry experience meeting with executives throughout the industry constantly, this report recommends seven growth opportunities that will help semiconductor companies accelerate towards high performance.

One: Focus on end markets
In traditional semiconductor end markets, growth depends on winning the "fight for sockets" and gaining a greater share of the silicon in specific end market devices. Critical to winning this battle is having a much stronger understanding than now resides in most semiconductor companies of customers' reference designs including innovation channels, consumer behavior, and usability and form factor revolutionary modifications for future new products. Chip firms need to use this understanding to provide chips that meet future needs. This, in turn, depends on having effective relationships with direct customers, as well as distributors to gain better customer intelligence and a rich understanding of where innovation is headed in a three-to-five-year time frame.

In this pursuit, chip firms need to gather insights into the end market to understand the specific economics, the cyclical nature of demand, and the unique nuances of the market. Two areas are critical. First is understanding end market usage models via data analytics. This means grasping how usage and movement of technology, such as smartphones and e-tablets as a convergence of key forms and functions, is progressing within a specific market. Second is comprehending end market value chains, meaning what additional insights and expertise are required to succeed in developed and emerging end markets that result in added-value to direct and indirect customers. The goal is for chip firms to become value-add design partners versus volume component chip manufacturers.

Two: Focus on profitable sales and operational planning
Sales and operations planning processes have historically focused on aligning supply and demand from only a unit and volume perspective. Thus, they have been narrower in scope and more conservative in their aims. Under this model, chip companies have typically considered capacity and inventory constraints along with price elasticity to determine optimal price points. Going forward, they need to focus on achieving profitable sales and operational planning. To do this they need to balance their financial performance with their demand, supply and market realities.

Profitable sales and operations planning delivers probabilistic scenario modeling in profitability, pricing, product/channel mix and capacity allocation. The way to achieve this is by performing responsive supply analytics to improve visibility in forecasting by geography, market channel cost adjustment and inventory. Transitioning from traditional sales and operational planning to profitable sales and operational planning will allow chip firms to better leverage enhanced resource planning, customer relationship management, and product lifecycle management investments with data integration and common planning processes.

Three: Focus on the IP design chain management
The chip industry continues to contend with intense pressures on product development costs and demands for faster deliveries of such products to market. This situation has heightened the importance of chip intellectual property (IP) and design chain management stemming from the convergence of chip manufacturing and IP within early stages of R&D. To achieve growth during the upturn, chip firms need to drive several initiatives including integrating management of IP and decisions about IP product portfolios. Such integration enables more effective collaborations on customer chip designs, lower chip development costs, faster validation of chip designs, reduced IP loss, increased IP reuse and licensing fees, and improved use of engineering capacity.

Four: Focus on talent management
With the market in recovery mode, more career opportunities are materializing for semiconductor professionals in various fields such as chip design and field application and technical sales engineers. Leading and retaining this talent is key for chip firms to seize growth. Many of these engineers have endured considerable hardship and excessive workloads during the recession as staffs have been trimmed. It's of paramount importance that semiconductor companies focus on how to retain knowledge, how to foster healthy organizations and positive corporate cultures, how to care for a group of engineers who feel overworked and are looking for better, less stressful and more stable career opportunities.

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