Connections to Internet Drives Semiconductors

We are going to see a big reversal in what connects to the internet in next five years. At the start of this century there were about 488 million internet connections; 85% of those were connected to people for web browsing, e-mails, on-line services etc. and only 15% were used for embedded systems, remote sensing and control, and M2M communication.

Can you imagine what would be the composition of internet connections in 2020? It will be a complete reversal of what we have seen in 2000; 85% of total connections will be through web-enabled devices in various segments including automotive, home, consumer, industrial etc. and only 15% will be to human individuals. And that would sum up to a total of 30 billion internet connections.

The new connections to IoT (Internet of Things) are increasing in double digits almost every year.

I like Texas Instruments CEO, Rich Templeton’s vision around this and forming his company’s strategy according to this. A few years ago, he revealed about his company’s strategy in a briefing in one of the investors forums. This was articulated as – the world is changing from number of persons per device to number of devices per person, so it makes sense to catch those devices’ market.

According to IC Insight’s report, the systems revenue for applications connecting to the IoT will nearly double, reaching about $124 billion by the end of 2019. And the pure IoT applications market will see a CAGR of 19.2% reaching more than 31 billion by the end of 2019.

The IC sales in IoT market will grow at a CAGR of 15.9% whereas the OSD (Optoelectronics, Sensors and Discrete) semiconductors are expected to grow at a higher CAGR of 26%, compounding the overall semiconductor growth rate in IoT applications to a CAGR of 19.2%. Among the IC sales, the top drivers will be microcontrollers and SoC microprocessors followed by memories. It’s understandable from an IoT standpoint.

There is no doubt internet infused a significant growth trajectory for semiconductors. Over last few decades we have seen a phenomenal growth in semiconductor business due to cellphones and then smartphones which connect to internet primarily for human users.

Smartphone remains the largest driver for semiconductor IC market; however the smartphone market is now maturing and is expected to stay more or less stagnant. Then what will fuel further growth in semiconductors?

It’s the number of connections to internet through devices other than smartphones. We are already seeing wearable segment of IoT having large growth at a CAGR of ~59% to reach $15.2 billion by the end of 2019. Apple watch has to be given thumbs up on this. Connected automotive is expected to show a CAGR of 31.5%. Then there are other segments of IoT such as medical, home, industrial, business, and others that will connect to internet and surprise us.

The semiconductor industry is at an edge of another transformation. We have seen large scale M&A activities this year which is expected to continue next year. And we will see a different direction in transformation now. Stay tuned for my article on future semiconductor landscape.

The IC Insights reports referred in this article can be found hereand here.

Pawan Kumar Fangaria
Founder & President at www.fangarias.com