Semiconductor success no longer about chips, it’s about end customers

Scott Grant, Accenture

USA: The year 2010 has been both profitable and turbulent for the semiconductor industry. As companies across the retail, communications and consumer technology industries build new products with embedded technology and greater programmability, the software-defined nature of devices is changing the usefulness and product life-cycle expectations for semiconductor components.

This change requires much deeper understanding by semiconductor designers and manufacturers of shifting customer needs. As such, the end user – the customer – has more power than ever before. To achieve high performance, semiconductor companies must lend a more attentive ear and more sharply focus their attention on their newly empowered bosses. Designing chips, and all the engineering that goes into that, is not nearly enough to achieve high performance in this industry.

In this intensified focus on customers, chip firms need to gather insights into the end market to understand the specific economics, cyclical nature of demand, and its unique nuances.

Two areas are critical. First, is understanding end market usage models via channel and data analytics. This means grasping how usage and movement of technology, such as smart phones and e-tablets as a convergence of key forms and functions, are 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 markets that result in added-value to direct and indirect customers. The goal is for chip firms to become value-add design and supply partners versus volume component chip manufacturers.

Beyond becoming value add partners, semiconductor companies must move from being engineering-centric to product-centric. What does this mean? Whereas engineering-focused companies concentrate on a roadmap for technology and specific step-by-step improvement in technical performance, product-focused companies concern themselves more with creating platforms to match uses and interests of their ethnographically diverse customers. Leading firms incorporate this process within their strategic long range product roadmaps with a three-to-five year view.

The transformation from an engineering-centric model to an end-market model calls for a new set of skills. There are five key areas where significant change is required to create the necessary integration and responsiveness in the value chain:

• market and customer segmentation;
• engineering;
• product lifecycle and release management;
• supply chain and supplier management; and,
• sales operations and deal management.

Market and customer segmentation
Semiconductor firms must develop a more pragmatic assessment of the market dynamics in which they operate and target for growth. This requires thoughtful segmentation of markets, customers and forecasted demand.

The inaccuracy of demand forecasts causes havoc on the sales and operations planning of costly capacity. It requires understanding differences in geographic segments and end-product usage behaviors, and tracking micro-trends in various technologies with advanced market trend intelligence from the channel and emerging markets. Traditional insights must be augmented with knowledge of buyer attitudes, perceptions, needs and values by customer and geographic segment.

Engineering
Semiconductor firms have traditionally had strong engineering skills and a competent ability to design components such as circuits and chip sets. And these components have typically been designed for manufacturing specifications without the need to understand downstream product requirements.

In today’s programmable space, chip companies need more platform and systems engineering capability, along with a collaborative approach with downstream partners. These will help them to better understand current and future end market needs and how components integrate and support product platforms over time.

Understanding product usage models will enable firms to better define component products and ensure they work within the parameters required. The ability to manage product transitions, such as end of life and new product roadmaps, determine the agility of an organization to attack the new trends. Firms can drive the greatest value through a comprehensive solution services set that encompasses systems-level integration thinking and embedded services.

Product lifecycle and release management
New markets and new products may require regulatory compliance, sustainability measurement, or other reporting not previously required to serve existing markets.

For semiconductor firms this requires stronger and more integrated product lifecycle, product release and intellectual property management systems to provide end-to-end product traceability. Many chip firms have partially implemented systems that are far from comprehensive.

Some lag in terms of tracing upstream to the materials supplier or downstream into the retail device in which they are implemented. Others have intellectual property management but lose visibility as the component development transitions from engineering to manufacturing. This results in lost license royalty or increased validation costs. Consequently, improving traceability and reporting will be critical to growth in new markets.

Supply chain and supplier management
As semiconductor firms increasingly focus on specific end markets, local market needs and micro-trends for product segments, a more flexible and responsive supply network is essential.

This may require repositioning work-in-process and finished goods inventory closer to critical markets. It may also demand allocation of inventory to specific geographies in need. Chip firms must reconfigure their historically fixed supply network models to optimize supply nodes supporting growth opportunities.

By creating more flexible and configurable supply chains, firms have the opportunity to create a tax-efficient supply chain that adheres to and leverages key trade regulations and stays in compliance with environmental and regulatory requirements.

Sales operations and deal management
In recent years, the sales approach of chip firms have evolved from transaction-focused selling to solution-selling. To keep pace with market evolution, the sales function needs to transform into a trusted advisory role offering value-based services.

In an advisory role, the field sales organization understands macroeconomic conditions impacting the market and its providers, the end market’s evolving requirements, and how the product should and could evolve to meet new requirements.

With this knowledge, the supplier thinks in tandem with the customer, bringing components that match or even surpass known customer needs. This implies a far tighter linkage between research and development, sales and supply chain within semiconductor companies than what exists today.

A final thought
To achieve high performance, semiconductor firms must face a reality: They can’t rely on just making chips and their engineering prowess. This business is more focused on the consumer than ever before, about how they use products powered by chips, what markets are hot, what products they like and why.

Chip firms need to change their focus, move outside their comfort zones of what they have been accustomed to doing for years. This shift in focus has never been more important to achieving success in this market.

The author is a managing director with Accenture's Semiconductor Business.