3rd November 2014

Are you capturing enough value on your innovation?

Read an interesting article, “Capture more value” by Stefan Michel in the latest HBR issue (October 2014). The article talks about how companies while putting in efforts in value creation often lose focus on value capture, thus leaving money on the table. It describes 5 different innovation categories in value capture – Changing the price setting mechanism, changing the payer, changing the price carrier, and lastly changing the segment.

Value Capture

Most of us in the semiconductor industry would confess to be “techno snobbish “. Working at leading edge technologies and in the scaling race, we often miss out the salient point – customers want technology benefits and not technology per se. While we are steadily moving towards treating the hardware chips and systems as modes for creating value and not just solely numbers in nanometres, we have a long way to go in exploring various possible and often innovative ways on how we can optimally leverage the value we create. Value capture is sadly under prioritized.

Let me take a few examples on some varying stages of value capture in this industry…..

Capturing value by changing the price setting mechanism:
The idea is to set the price according to the product’s value or worth to the customer. Memory (DRAM and NAND Flash) pricing is a good example here.

Changing the price carrier:
Price carrier is what the seller is hanging the price tag on. Semiconductor IPs is a good example here. IP vendors have evolved their IP strategies from treating IPs as fillers for differentiating hardware sockets in a system towards ensuring that the IP works not just as an isolated unit but also in the complete system. It subsequently evolved towards IP plus services and then is moving towards offering the customer a complete IP (hardware, services, software) platform solution. The price tag has moved from the die space to differentiating value provided to the customer and then the complete valued package. Bundling and unbundling of various EDA licenses is another example where the EDA company is changing the price carrier.

Changing the payer:
It may not always be the case that it is only the consumer of the product/offering who pays for the value he receives. Like in some media where content is offered free to the public, the costs are shared by the advertisers. An example I see here is that of Qualcomm’s push to the China fabless design houses to design using its cores. Am not sure of the veracity of this but understand that in China, Qualcomm recovers its IP royalty not from the design houses there but from the system houses which use the design solution (with the Qualcomm core) from these local design houses.

One of the potential big biz for us is in the Internet of Things….. and it is especially in this space that the semiconductor industry needs to think hard and differently from its traditional value innovation and capture strategy - if it doesn’t want to be left out with just a fraction of the pie. I will do a separate post on this shortly.

Do you see other examples of value capture in your industry? What is your opinion on this? Would be keen to hear your ideas and perspective on this.

posted in Semiconductor, EDA, Business, Hardware, Management & Strategy | 0 Comments

14th February 2013

Internet of Things (IoT) and the opportunities for chip biz

There has been a lot of talk on Internet of Things (IoT) or Machine2Machine (M2M) communications – which basically is an intelligent grid of devices connected to each other through the internet. Chips are embedded in the devices enabling them to relay information, take decisions, communicate commands and adjust settings/implement a requisite action(s) accordingly.

As per a report from ABI Research, over five billion wireless connectivity chips will ship in 2013.

What does this mean for the chip biz?

Some basic things that various devices involved in this IoT will include are: wireless connectivity (mostly low power unless one or more of these devices is connected to the mains), sensors, MEMs and control units.

The control units here needn’t be too fancy – efficient and sufficient enough to do the task they are assigned for. They span from low end to high end depending on the computing power required for the control functions - served by MCUs, embedded processors. The sensors (for temperature, pressure, moisture, light etc.) are coupled with accelerometers, gyroscopes and the like.

Connecting to the internet – wirelessly and power efficiently – that will be the key for connectivity stake holders in this space. Nuel has come up with an interesting way to achieve this. It recently announced a white space (unused frequencies during TV channels’ transmission) radio chip for low power communications and come out with a chip to demonstrate the same (it implements the “Weightless’ specifications)

One thing I find interesting about IoT/M2M is that it does not have any defined market space/application. There are potentially several applications, several markets where these can find their way. So, while one can chose to specialize in servicing one market/application, a choice of providing a generic chip/platform (control/sensor/connectivity) for any or combination/integration (SoC) of the components of the basic fabric for any (or at least most of the applications) is also wide open.

However, for the application to catch on, it has to be implemented in an inexpensive way and should be easy to use - and that is where we’ll see some exciting innovation & integration happening

posted in ASICs, Semiconductor, Business, Communciation, Technology, Hardware, Ecosystem, chip design, Market trend | 0 Comments

16th August 2011

So what’s the deal with the Google –Motorola Mobility deal, eh?

The cyberspace is abuzz with news about Google acquiring Motorola Mobility for a whopping $12.5 billion. Speculations on Google’s motive behind the deal are mainly skewed towards 2 issues – access to patents and the other whether Google has plans to set up another end-to-end mobile empire akin to Apple. Add to that the buzzing concern of a high potential for conflict - mainly whether there still will be a “level playing field” amongst different Android handset vendors.

My two cents….

1. Access to patents: Motorola deal gives Google access to more than 17000 patents. This helps Google lend a legal hand to the embroiled Android handset vendors like HTC and Samsung as well as prepare itself against potential infringement law suits.

Flip side: If that was the main point, would Google not have been better off with just buying the patents like it did from IBM?

2. Potential conflict of interest – open OS partner or a handset competitor?? Now that can indeed be a worrying factor amongst the Android handset vendors - in spite of the prompt support statements from Samsung, HTC etc. Will these companies who had flocked towards Android to compete against Apple now gravitate towards Microsoft’s Windows Mobile? Google has stated that the handset biz will be kept as a separate independent biz and Android platform as an open one as before but the company will have a tough time treading this slippery slope in order to retain the Android handset vendors’ support.

Having said that, we have seen biz areas where the line between partner and competitor has blurred. Pure play foundries, IP vendors and IDMs is one such example. Market conditions have led to consolidation, fab lite etc. IDMs get the core process wafers done from foundries and keep some special process add-ons in-house to retain their specific niche. IP vendors work along with foundries in spite of foundries touting their own IP portfolio as well as specific design services.
Individually it has got very difficult to compete, with combining resources, there always lurk the spectre of “loss of level playing field”.

3. An Apple like end-to-end empire: Lucrative but an extremely difficult path ahead for the search engine giant in the hardware world… a tough act to follow!

But apart from these, the news throws up another nugget too:

The central point of computing is moving away from the desk towards mobile - and search engines do follow the computing devices. A tight integration between hardware and OS will make it easier to get the desired utilities and apps to the consumer – providing the coveted “unique user experience’.

The deal goes beyond handsets. Motorola Mobility is also into set top boxes – just to name another one. This will bring Google back into the home automation market. Gigaom’s Stacey Higginbotham & Katie Fehrenbacher has written a very good article on this; do read it. Getting your ads, location optimized and perhaps with dynamic relevance does require a tighter integration between the hardware and software.

And it is for this reason alone, my opinion is that it will very much be in Google’s interest to keep Motorola Mobility humming away as a separate unit within Google – especially as far as the level playing field of Android handset entities are concerned and leverage this hardware vendor acquisition to bolster its search ads revenues by making it’s ads more pervasive and relevant.
The patents are the special icing on the cake!!

posted in Semiconductor, Business, Industry Events, Mergers & Acquistions, MIDs, Hardware | 0 Comments

7th June 2011

Tablets and other MIDs: Commoditization of hardware??

A Tablet market report from Goldman Sachs states “The OS platform wars could drive greater hardware commoditization over time. We believe that over time the more open platform vendors may have to impose standard hardware and user interface specs on handset and tablet OEMs to ensure that software developers have a uniform installed base. This move to standardization would narrow the ability for hardware manufacturers to differentiate their technology over time and could result in hardware commoditization like that found in the traditional PC market.”

With the gaining importance of software in the Mobile Internet Devices (MIDs), hardware’s role as a differentiating factor is indeed diminishing. And with that, so do the profit margins for the chip industry incumbents. So, how are the chipset players reacting to survive, if not thrive, in this evolving market?

Qualcomm shows a recent example - “Qualcomm will give web apps a boost”.
As a part of the company’s effort to enable a shift away from today’s fragmented set of native mobile environments, it is set to release shortly a set of applications programming interfaces geared to give Web-based applications deeper links into hardware. The company already supports Android, Blackberry, Windows Phone and WebOS mobile OSes among others. A move to Web-based applications would help it reduce the variety of platforms for which it needs to write software supporting its chips.

Web vs. native apps - as the mobile usage increases, both will grow with it and become valuable factors of product road maps. The question the product strategists need to ponder upon, however, is “what does my target audience need?” While the debate of web vs. native apps is not new, it does throw some interesting options in this backdrop of looming hardware commoditization.

One option is - The chipset vendors start conforming to the standard specs set by the open platform vendors. The hardware is strongly connected to the OS platform and with a proliferation of various mobile OS in the market, it is not an easy task supporting them all or even hedging on a few. Not enticing.

But what if a chipset vendor were to make inroads into web apps and get a deep link between web apps and its native hardware through some popular browsers? it can potentially get some interesting revenues by tapping the right web apps based on their target market – and remember that web apps is an open platform – no waiting, no approval. Its success is hinged on its adoption by the user community.

Having said that, the speed comparison (of compiled vs. interpreted code/web vs. native) will be there as well as cases, especially till the near future, where native wins over web but companies are working on those too (Qualcomm has been working for two years to optimize software so that browsers run as fast as possible on its chips). What has happened to desktop apps, can also happen to native mobile apps. Hmmm…. This may be one escape route from the commoditization problem.

posted in Semiconductor, Technology, MIDs, Hardware | 0 Comments

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