the internet of things opportunities and challenges for … · 2019-10-11 · 4 contents key...

The Internet of Things –

opportunities and challenges

for semiconductor companies May 2015

January 2015

1

This final report is the result of a collaboration between

McKinsey and the Global Semiconductor Alliance (GSA)

SOURCE: Gartner; IDC; ABI Research; GSA and McKinsey & Company “IoT collaboration”

A key growth opportunity

▪ The number of connected IoT devices is

expected to reach 20 – 30 bn by 2020

▪ A semiconductor growth opportunity exists for

servers/network equipment (“Internet”) and

components for deployed “things”

A new strategic challenge

▪ The highly vertical character of the IoT (many

small niches) requires a new approach on how

to address the market

▪ The IoT is starting to happen but is still early

in its development (e.g., unclear standards, no

“killer application” yet)

▪ IoT devices often have specific technical

requirements regarding low power

consumption, integration, cost points,

connectivity, and sensors

Unpaid collaboration between GSA and

McKinsey & Company to develop a

perspective on the implications of IoT for the

semiconductor industry

11 GSA member executives overseeing the

effort as the Steering Committee

Interviews with 30 C-level executives from

semiconductor companies and the broader IoT

ecosystem (including semiconductor

customers)

Survey of 229 semiconductor executives

from GSA member companies

Final report summarizing findings (ex-

clusively available for GSA members)

Supporting rigorous (quantitative) analyses

GSA/McKinsey collaborationFor semiconductors, the IoT is

2

The joint GSA/McKinsey report on IoT is available in 3 different formatsThis report

SOURCE: GSA and McKinsey & Company “IoT collaboration”

Presentation – executive

summary Presentation – fact pack Written report

70-page presentation

▪ Detailed presentation and

documentation of findings

20-page presentation

▪ Short executive summary for

an overview on the report’s

key findings

Reports exclusively available for GSA members at

http://www.gsaglobal.org/gsa-resources/publications

20-page written report

▪ Complementary perspective

with special focus on

interview findings

3

Editorial


Churchill Tower

12400 Coit Road, Suite 650

Dallas, Texas 75251

United States

http://www.gsaglobal.org

Sandro Grigolli

EMEA Executive Director

[email protected]

Sophienstraße 26

80333 Munich

Germany

Dr. Harald Bauer, Director, Frankfurt

[email protected]

Mark Patel, Principal, San Francisco

[email protected]

Jan Veira, Associate Principal, Munich

[email protected]

David Baillie, Fogale Sensation, CEO

Dr. Jalal Bagherli, Dialog Semiconductor Plc, CEO

Stan Boland, Neul Ltd., CEO

Svein-Egil Nielsen, Nordic Semiconductor ASA, CTO

Dr. Steven Gray, CSR Plc, CTO

Dr. Harald Hamster, Infineon Technologies AG, Head of Strategy

Dr. Yannick Levy, Parrot SA, VP Corporate Business Development

Dr. Maria Marced, TSMC Ltd., President TSMC Europe (Chair of Steering Committee)

Thomas Riener, ams AG, EVP and Head of Marketing & Strategy

Dr. Hans Rijns, NXP Semiconductors NV, CTO

Remy de Tonnac, INSIDE Secure SA, CEO

GSA Steering Committee for this report

This report was developed as a part of an unpaid collaboration between the Global Semiconductor

Alliance and McKinsey & Company between Aug. 2014 and Apr. 2015

4

Contents

Key

strategic

challenges

Implications for semiconductor

players

▪ Semiconductor players have to pick their role in an evolving market

and embrace challenges as opportunities

IoT as a growth driver for the


▪ IoT is expected to be a key growth driver for semiconductors; however some

ambiguity exists about the timing and the magnitude of growth

Introduction▪ IoT spans a broad field of applications and is starting to happen now

Good progress towards the

realization of IoT

▪ Progress for IoT has been made by increasing supplier push and customer

demand, technological and cost advancement, and improved infrastructure

Customer

demand2

▪ Which opportunities exist for stimulating market demand?

Standards 3▪ What is the best way to navigate an environment

of immature standards?

Technological

advancement6

▪ What can be done to continue the technological improvements towards low-

power and low-cost IoT devices?

▪ Challenges need to be overcome to unleash the full potential of IoT

Security and

privacy1

▪ How can security be ensured across the IoT stack?

▪ How can privacy requirements be met for IoT?

Platform

strategy4

▪ How can customers in fragmented markets be reached successfully?

Value

extraction5

▪ How can a suitable business model be chosen?

▪ How can a semiconductor company capture value?


5

Internet of Things can be defined in a wider or more focused way

SOURCE: Expert interviews; McKinsey and GSA IoT survey (n=229; VP-level+ executives from semiconductor companies); GSA and McKinsey

& Company “IoT collaboration”

ILLUSTRATIVE

Classic

Internet devices

Cloud

Big

data

PCs Tablets

Smart-

phones

Data centers

Enterprise intranet

The IoT is the network of all

physical objects accessed

through the Internet

Wide definition

“Smart things”

Wearables

Autonomous systems

Industrial automation

Medical devices

Connected cars

The IoT is the network of all

smart things communicating

over the Internet with

something else without

human interaction and that

have some sort of sensing

mechanism

Focused definition

Focus of this report1

1 Key findings in this report are; however; also valid with the wider definition

6

IoT is an ecosystem, and “things” are only a small part of thisIoT technology stack – example energy/smart grid SELECTED ELEMENTS OF STACK“Things”

SOURCE: Press clippings; expert interviews; GSA and McKinsey & Company “IoT collaboration”

Exemplary players

Energy T&D

infrastructureCustomersWiresSubstation

“Things” Meters StorageTransformersSwitches

Communica-

tion networkWAM, WiMAX, cellular LAN, RF mesh, PLC

Home-area network

(HAN), ZigBee

Use

cases

Smart meter

(e.g., advanced

meter

infrastructure)

Grid apps

(e.g., substation

automation)

Customer

applications

(e.g., demand-

side

management)

Integration

(e.g., supply/

demand

balancing, load

forecasting)

Semi-

conductorMemoryDSPProcessor Analog MEMS

System

integrationPower grid management systems and system integration

Software

Distribution

management

system (DMS)

Outage

information

system (OIS)

Asset

manage-

ment (AM)

Customer

information

system (CIS)

Meter data

management

system

(MDMS)

http://www.honeywell.com/


http://www.itron.com/pages/index.asp

http://www.itron.com/pages/index.asp

http://images.google.com/imgres?imgurl=http://www.comp.nus.edu.sg/cap/IBM logo- all colors.jpg&imgrefurl=http://www.comp.nus.edu.sg/cap/corpaffiliates_list.htm&start=1&h=557&w=1436&sz=56&tbnid=ySKgBvsPeiTpDM:&tbnh=58&tbnw=150&hl=en&prev=/images?q=ibm+logo&gbv=1&svnum=10&hl=en

http://images.google.com/imgres?imgurl=http://www.comp.nus.edu.sg/cap/IBM logo- all colors.jpg&imgrefurl=http://www.comp.nus.edu.sg/cap/corpaffiliates_list.htm&start=1&h=557&w=1436&sz=56&tbnid=ySKgBvsPeiTpDM:&tbnh=58&tbnw=150&hl=en&prev=/images?q=ibm+logo&gbv=1&svnum=10&hl=en





7

Many new IoT applications have already been established – even more are

gaining traction and are on the horizon

SOURCE: IHS; expert interviews; press clippings; GSA and McKinsey & Company “IoT collaboration”

Proliferation status of IoT applications

Wearables

Industrial

automationSmart home

Medical

electronics Connected cars Smart cities

Smart meter Vehicle tracking

Fitness accessories Logistics trackingHome automation Telematics Traffic monitoring

Vital function monitoring Remote servicingConnected appliances

Surveillance

Productivity

improvementConnected lighting In-vehicle infotainment Public surveillanceSmart watch Digital patient record

Emerging over the

next 3-5 years

Estab-

lished

Gaining

traction

Existing

today

Predictive maintenanceIntelligent lighting Smart pill

Smart thermostat

Smart door lockHospital management

Automatic system

upgradeSmart glasses Traffic control

Predictive process

monitoring

Predictive maintenanceSmart implantsLocation-based

information

GardeningSmart clothes and shoes Patient localization

Vehicle to vehicle /

vehicle to Internet

communication

Smart gridsIntelligent

production lots

On the horizon Distributed

environmental

monitoring

Autonomous

maintenance

Embedded wearables Assisted living Autonomous driving Predictive maintenanceSensor swarms

Agile/individual

manufacturing

8

Initial applications show that the IoT is already happening

SOURCE: IHS Technology 2013; press search; Navigant Research; SBD; CCS Insight; University of Michigan; The Edison Foundation Institute

for Electric Innovation (IEI); GSA and McKinsey & Company “IoT collaboration”

1 Prediction by Morgan Stanley

Wearables – Smart watches Connected car – Insurance Smart metering

▪ In 2014 > 22 mn wearable devices

sold with a volume of ~ USD 12bn

▪ Launch of Apple watch expected

in Q2 2015 with volume up to 30

mn units in first 12 months1

▪ An American car insurance

company monitors customer

driving habits via the mobile

network with a customized device

installed in the car

▪ > 50 mn smart meters (AMI,

advanced meter infrastructure) are

installed in the USA which cover

43% of all US homes

Road pricing system IoT technology in automotive Smart service in industrial machine

▪ Smart system diagnostics have

improved the first-time fix rate by

5% for an exemplary equipment

vendor in the flexible materials

industries

▪ An electrical vehicle manufacturer

fixed battery charging on ~30,000

cars without a “physical recall”

with a remote system update via

the mobile network

▪ In Singapore, > 93 gantries have

Electronic Road Pricing System to

manage road tolls which are

charged based on location, time

slots, and day (e.g., weekday vs.

weekend)

9

Contents

Key

strategic

challenges


players





▪ IoT is expected to be a key growth driver for semiconductors; however

some ambiguity exists about the timing and the magnitude of growth



realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




10

IoT is considered to be a key growth driver for semiconductors

in the coming years

ILLUSTRATIVE

2000 - 2007

2007 - 2014

2014 - 2020

3% p.a. 4% p.a.

Average

industry

revenue

growth

3 - 5% p.a.

SOURCE: McKinsey and GSA IoT survey (n=229; VP-level+ executives from semiconductor companies); iSuppli; Gartner; IDC; expert interviews;

McKinsey Global Institute; GSA and McKinsey & Company “IoT collaboration”

Key

growth

drivers

Personal com-

puting/internet

Wireless com-

munications Internet of Things

▪ PCs

▪ Laptops

▪ Servers

▪ Smartphones

▪ Network

infrastructure

▪ Smart home

▪ Wearables

▪ Healthcare

▪ Industrial

▪ Connected car

▪ Cloud/big data

Current

trends

… and IoT is likely to

pick upII

▪ Considered most important

growth driver by many executives

▪ IoT installed base to grow by 15-

20% p.a. to 26-30bn devices in

2020

▪ Economic impact > USD 2 tr

in 2025

Wireless as key growth

driver will slow down…I

▪ 16% growth p.a. 2009 - 13

▪ Market maturity expected

to slow growth down to 3%

p.a. 2014 - 18

How do you rate IoT

as a growth driver?

%

I expect limited

incremental

growth from the

IoT

Just 1 of many

growth factors

for the industry

One of the top 3

incremental

growth drivers

of the industry

The number 1

incremental

growth driver for

the industry

2

33

48

17

Survey of semiconductor

industry experts shows IoT

as key growth driver

11SOURCE: iSuppli (Q3 2014); McKinsey; GSA and McKinsey & Company “IoT collaboration”

Semiconductor industry revenue by application, 2000 - 20E, USD bn

Note: Figures may not sum due to rounding

5331

95

57

38

24

22

47

52

58

35

41

28

20

30

21

16

25Data

processing

+4% p.a.

+4% p.a.

+3% p.a.

Wireless

Industrial

Consumer

electronic

Automotive

Wired

2020E

439

154

109

19E

422

18E

409

17E

396

16E

385

15E

374

14E

352

112

100

13

323

12

304

11

313

10

309

09

231

08

260

07

274

102

06

264

05

239

04

229

03

186

02

161

01

157

2000

221

12

Semiconductor industry growth has primarily been driven by growth

in the wireless market over the last 5 years

CAGR

2014-20

CAGR

2007-14

11%

4%

6%

6%

CAGR

2000-07

8%

-6%

0% 1%1%

7% 7%1%

-2% -2%8%

5% 6%8%

I

12SOURCE: Gartner; IDC; ABI Research; expert interviews; McKinsey; GSA and McKinsey & Company “IoT collaboration”

The IoT installed base is expected to grow rapidly in the long-term, but

executives have different expectations on timing and growth segments

IoT installed base1

Connected devices, billions

Analysts are optimistic about the rapid rise

of the IoT market

“If you aggregate all IoT verticals, the

opportunity is huge. Obviously, it will

grow, but verticals will behave differently

and take-off at different rates”

– IDM VP

“I believe the IoT will happen and reach

significant scale but it’s not yet fully clear

at what point the critical scale for market

inflection will be”

– Fabless player executive

26

7

28

9

30

10

+15-20% p.a.

2013 2020

ABIIDCGartner

“I think IoT is the next natural evolution of

the semiconductor market, but I don’t see

it providing any revolutionary growth”

– Foundry executive

While executive expectations are

positive but more tempered

1 “Wide” IoT definition used by reports (i.e. including "classic" internet devices; such as PCs; servers).

II

13

Network and cloud infrastructure growthIoT device growth

2018E

+3% p.a.

10.9

+4% p.a.

17E

10.5

16E

10.1

15E

9.7

14E

9.3

13

9.0

12

8.7

11

8.6

2010

8.3

IoT is also a significant growth opportunity for semiconductors

due to the increasing demand for network and cloud infrastructure

SOURCE: IDC; press clippings; analyst reports; expert interviews; GSA and McKinsey & Company “IoT collaboration”

Increased demand for network infrastructure and hubs

expected due to

▪ Increased number of hubs required to deliver

connectivity coverage

▪ Lower computational efficiency of small hubs vs. servers, (i.e.,

higher demand for silicon for same computation needs)

▪ No virtualization of hubs

▪ Number of connected IoT devices

expected to grow to 26 - 30 bn by

2020

▪ Trend exists to shift as much

computing power from the “thing” to

hubs or into the cloud in order to

minimize power consumption and form

factor of “things”

Network infrastructure – IoT drives demand

Server market – slow but steady growth

Server shipments, millions

II

14

The readiness of IoT for reaching the growth

inflection point varies by vertical

SOURCE: McKinsey and GSA IoT survey (n=229; VP-level+ executives from semiconductor companies); IHS; expert interviews;

GSA and McKinsey & Company “IoT collaboration”

II

14

10

53

21

1

> 5 years from

now

I don't expect

a disruption,

but steady

growth

3 - 5 years

from now

1 - 2 years

from now

Now

Partially availableWidely available

Inflection

enablers

Industry

Automation Smart citiesSmart home

Medical

electronics

Connected

carsWearables

Ecoystem/

infrastruc-

ture (e.g.,

products

available,

network

coverage)

Capabilities for

IoT missing in

hospitals

Technology

(e.g., ad-

vancement,

affordability)

Current price

level only

feasible for

premium/enthus

iast customers

Further devel-

opment of che-

mical sensors,

miniaturized

implants

ongoing

Affordability for

complex IoT

(e.g., autono-

mous driving) to

be created

Market

(e.g., frag-

mentation,

standards,

security)

Interoperability

and security

currently only

within (small)

proprietary

ecosystems,

industry wide

standards

missing

Strong business

models needed

that do not

require big

investments;

higher integra-

tion of different

applications

needed

Overarching

integration of

applications

needed;

missing

standards

impeding

growth

High

certification

requirements

in medical

applications;

initial growth

expected from

lifestyle/fitness/

assisted living

Highest safety

and reliability

need to be

guaranteed;

legal aspects to

be clarified

(potential

regulation)

Profitable

use cases

searched

When do you expect that

the IoT inflection point will

be reached?

Percent

Note: Figures may not sum due to rounding

ILLUSTRATIVE

Most surveyed semi-

conductor industry experts

expect growth inflection

point in 1-5 years

15

Consumer electronics case studies reveal that inflection of growth

pockets occurred when the relevant growth enablers was in place

SOURCE: McKinsey; GSA and McKinsey & Company “IoT collaboration”

II

▪ 5 growth

enablers

identified

(2 technology

driven, 3

ecosystem

driven)

▪ Inflection of

growth hap-

pened when

the last

relevant

enabler of

growth was in

place

Inflection

enablers

Year of

inflection

Smart-

phones

Consumer electronics technology case studies

Mobile

phone

(India)

Net-

books

MP3

player

Flat-

screen

TV

2005 2009 2007 2003 2003 2008

Blu-ray Tablet

2010 2006

Social network

PC Mobile

2009

Technology

driven

Usability <2000 2009 <2000 2001 2003 2006 2010 <2000 2009

Affordability 20072009 2002 2003 20062005 2010 <2000 2009

Ecosystem

driven

Content

availability

n/a <2000 <2000 2003 <2000 2007 <2000 2006 2006

Standards <2000 <2000 <2000<2000<2000 2008 <2000 <2000 <2000

Infrastructure

availability

2005 2005 2005 n/a <2000 n/a 2005 2004 2004

16

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




17

Key enablers from semiconductors and beyond for IoT growth are already

in place today


Supplier

push

Required

infrastructure

Technological

enhancement

Customer

demand

A Key players have positioned themselves along the value

chain and have launched flagship products

B Alliance building and M&A activity are extensively used

to strengthen companies’ positions

G Connectivity infrastructure is widely available

(e.g., LTE, WiFi)

H Cloud computing is readily available at rapidly

declining prices

E Increased device lifetime has been enabled by reduced

power consumption due to semiconductor technology progress

F Cost position of critical components (e.g., sensors) is

reaching levels that allow for higher market penetration

C Consumer pull is gaining momentum in certain segments,

(e.g., for wearables)

D There is increasing interest in IoT solutions

(e.g., Industry 4.0)

18

IoT players across the value chain are preparing for

broad IoT adaption

EXEMPLARY PLAYERS

SOURCE: Press clippings; analyst reports; GSA and McKinsey & Company “IoT collaboration”

Key movements of selected IoT players

A

Solution provider End retailers

Leading IoT trend based on deep understanding

of customer needs and innovative ideas

▪ Develop and launch

low-power solution

for IoT (e.g., ARM

Cortex-M,

Bluetooth LE)

▪ Codevelop extreme

low-power core

architecture with

chip manufacturer

(e.g., MIPS-Ineda)

▪ EMS develop IoT

products for non-

traditional electronics

companies (e.g.,

Google Glass by

Foxconn, Nike

FuelBand by

Flextronics)

▪ Develop and launch

IoT-optimized chip

by integrating

multiple

components into 1

chip (e.g., Intel

Quark)

▪ Partnership among

semiconductor

players for IoT chip

(e.g., Atmel-Bosch

collaboration)

▪ Announce OS and

standard platform

for IoT (e.g., Apple

HomeKit, Google

Nest)

▪ Various start-ups

emerged for IoT

devices

▪ Diverse non-

traditional

electronics

companies launch

and adopt IoT devices

(e.g., connected light,

insurances)

IP provider Chip manufacturerSystem integrator

(EMS)

19

Key players extensively use alliances and M&As

to strengthen their IoT market position M&As and

alliances

ChipDevice

SOURCE: Expert interviews; company web pages; press clippings; team analysis; GSA and McKinsey & Company “IoT collaboration”

Recent IoT-related M&As, alliances and commercial activity

Qualcomm

launched Gimbal

beacon

Apple announced

HomeKit and

HealthKit for iOS 8

Intel announced

smart shirts

product

Samsung

announced Simband

open platform

Nest launched the

Nest Protect smart

smoke detector

Aug Oct Dec Jan Feb Mar Apr May Jun Aug Oct

2013

Apple

announced

Apple Watch

Samsung and LG

launched

connected lighting

Intel launched

Quark SoC

and IoT

business group

Intel

launched

Edison IoT

platform

ARM

acquired

Sensinode

Google

acquired

Nest

Qualcomm

acquired

CSR

Verizon, GE,

and Intel

announced

IoT alliance

Microchip

acquired

ISSC

Toshiba

launched appli-

cation processor

for wearables

2014

NOT EXHAUSTIVEB

http://johndayautomotivelectronics.com/wp-content/uploads/2014/10/CSR_plc_logo_Sept_2013.jpg

http://johndayautomotivelectronics.com/wp-content/uploads/2014/10/CSR_plc_logo_Sept_2013.jpg

20SOURCE: Navigant Research; SBD; CCS Insights; University of Michigan; GSA and McKinsey & Company “IoT collaboration”

IoT verticals are expected to grow due to increasing customer pull

135

100

6942

2210

1331241151079992

41

3224

171311

17E 2018E16E15E14E2013

“In a telephone poll of 1,011 Americans, young

consumers aged 18 - 34 are the most excited

about wearable technology. 57% said they

would purchase or wear smart glasses, and

53% said they are interested in

a smart watch’

–Opinion Research

“Despite concerns, about ¾ of respondents

believe that connected vehicles will reduce the

number and severity of crashes, improve

emergency response times and result in better

fuel economy. In addition, more than 60%

expect less traffic congestion, shorter travel

times, and lower vehicle emissions”

–University of Michigan poll

Customer pull (examples)

Smart

meters

Wearables

IoT verticals growth

Number of shipments, mn

Connected

vehicles

“Consumers are asking for competitive, low- or

no-carbon, highly efficient power. We’re finding

that clean power generation through smart grid

is the most competitive”

–Galvin Electricity Initiative

C

21

IoT is currently gaining broad interest – Industry 4.0 example

SOURCE: Expert interviews; Press research; GSA and McKinsey & Company “IoT collaboration”

D

Advantages of Industry 4.0

Of production

processes

Simpler coordination

of fragmented,

worldwide value

chains

Digitization

In a

cyberphysical

system (CPS)

with auto-

nomous

exchanges of

information and

automated

action

triggering

Flexible, autonomous

transport systems

and efficient

warehouse logistics

Intelligent products

that manage their

own production

process

Networks/

connectivity

For example,

3D printing,

advanced

robotics

technology,

sensorics

Flexibility of the

production lines down

to a lot size of 1

Advanced

technologies

▪ German SMEs – the "Mittelstand"

– could increase their revenue

even more and create 670,000

new jobs if they would make

more use of the latest IT

▪ Industry 4.0 is today largely a

matter for big companies

▪ Manufacturing in the DACH

region (Germany, Austria, and

Switzerland) has to catch up on

the road to Industry 4.0 (IoT in

manufacturing)

▪ Opportunities with analytics are

far from exhausted

EnablesBased on

http://www.google.com/url?url=http://www.bcgsystems.com/blog/?Tag=Microsoft&rct=j&frm=1&q=&esrc=s&sa=U&ei=MForVOiFJYjh8AWhtYKAAw&ved=0CBYQ9QEwAA&usg=AFQjCNFyqhFvrXQRIWfmZPQs8QD1sOU2BQ

http://www.google.com/url?url=http://www.bcgsystems.com/blog/?Tag=Microsoft&rct=j&frm=1&q=&esrc=s&sa=U&ei=MForVOiFJYjh8AWhtYKAAw&ved=0CBYQ9QEwAA&usg=AFQjCNFyqhFvrXQRIWfmZPQs8QD1sOU2BQ

http://www.google.com/url?url=http://www.bcgsystems.com/&rct=j&frm=1&q=&esrc=s&sa=U&ei=MForVOiFJYjh8AWhtYKAAw&ved=0CBgQ9QEwAQ&usg=AFQjCNHE6fSo8QF4Sh1XpUd3U3hZ8I8ldA

http://www.google.com/url?url=http://www.bcgsystems.com/&rct=j&frm=1&q=&esrc=s&sa=U&ei=MForVOiFJYjh8AWhtYKAAw&ved=0CBgQ9QEwAQ&usg=AFQjCNHE6fSo8QF4Sh1XpUd3U3hZ8I8ldA

http://www.google.com/url?url=http://www.analystratings.net/stocks/NYSE/DB/&rct=j&frm=1&q=&esrc=s&sa=U&ei=bForVIzgD8zM8gXs84LgCw&ved=0CBYQ9QEwAA&usg=AFQjCNExbFBMNafYzVpuGbzncJMJSlnhkg

http://www.google.com/url?url=http://www.analystratings.net/stocks/NYSE/DB/&rct=j&frm=1&q=&esrc=s&sa=U&ei=bForVIzgD8zM8gXs84LgCw&ved=0CBYQ9QEwAA&usg=AFQjCNExbFBMNafYzVpuGbzncJMJSlnhkg

http://www.google.com/url?url=http://en.wikipedia.org/wiki/University_of_Potsdam&rct=j&frm=1&q=&esrc=s&sa=U&ei=51krVKnWIIPN8gWT3YEw&ved=0CBYQ9QEwAA&usg=AFQjCNFlUtPa8o26Xipq-bGVAnpOL_lP6g

http://www.google.com/url?url=http://en.wikipedia.org/wiki/University_of_Potsdam&rct=j&frm=1&q=&esrc=s&sa=U&ei=51krVKnWIIPN8gWT3YEw&ved=0CBYQ9QEwAA&usg=AFQjCNFlUtPa8o26Xipq-bGVAnpOL_lP6g

22

Industry 4.0 example – condition-based maintenance allows increased

utilization due to fewer breakdowns

12 3624 48 Time Months

Failure ratePer 1,000

Failure

rate

to repair

Early lifetime

standard failure

rate suggests

replacement at

48 months

Remote sensor already

signals replacement

need at 24 months

1 Aggregated average figures from expert interviews – not for a specific company

SOURCE: Expert interviews; ARC Advisory Group; VibroSyst; WiHART System; Schaeffler; Department of Defense; GE; GSA and McKinsey &

Company “IoT collaboration”

Estimated need for

repair at 48 months

Detecting early signs of

problems for timely

correc-tion at minimal

costs

Prioritizing and

optimizing mainte-

nance resources using

real-time data

Increasing unit

availability due to

shorter

downtimes

D

-50%Machinery

breakdowns

-20%Spare part

inventory

-50%Total machine

downtime

-20%Overtime

expenses

+20 - 40%Machine life

Overall

productivity

+20 - 30%

Typical impact of CBM1Condition-based maintenance (CBM)

23

NOT EXHAUSITIVESemiconductor technology has made good progress

on enabling lower power consumption of ICs

1 Technologies are (partly) not “additive” but complementary 2 Volume production time for 28nm FDSOI 3 For mobile DRAM

SOURCE: Press research; Company websites; GSA and McKinsey & Company “IoT collaboration”

DescriptionTechnology1

▪ System on chip (SoC) combines multiple dies in 1 package through interpose to save on

power, cost, and footprint of the package

▪ Compared to nonintegrated design, SoC reduces power consumption by ~ 35%, package

size by ~ 40%, and overall cost by 25%

SoC

packaging

2007 and

earlier..

▪ High-K Metal Gate (HKMG) lowers power consumption of ICs compared to SiO2 gate

oxide

▪ Leakage current of HKMG is ~ 90% lower than SiO2 gate

HKMG2007

▪ New heterogeneous multicore architecture couples low-power processor cores with high-

performance, high-power cores

▪ Comparing to Cortex-A15, Cortex-A15∙Cortex-A7 saves 75% of the CPU energy

ARM big-

LITTLE

architecture

2011

▪ FinFET is a 3D transistor with stronger gate control from a trigate design and depleted

channel

▪ Compared to planar MOSFET, FinFET is 30 - 40% faster, and the leakage current is

reduced up to 90%

FinFET2011-2012

2014

▪ 3D through silicon via (TSV) is a new packaging technology for multiple types of ICs so

that they can be stacked horizontally and vertically in a single package

▪ For example, 3D TSV for DRAM is expected to match performance plus 20 - 30% lower

power consumption compared to standard DRAM

3D TSV3

2013

▪ Fully depleted silicon on insulator (FD-SOI) with a depleted channel and and additional

ultrathin insulator layer (buried oxide) provides strong gate control and low leakage current

▪ FD-SOI is 20 - 30% faster and has 25 - 50% lower power consumption than bulk CMOS

FD-SOI2

E

24SOURCE: Bernstein Research; Yole; press clippings; GSA and McKinsey & Company “IoT collaboration”

TSV technology is key for 2.5/3.0D IC integrationE

Mold

PCB

Substrate

Die 1

Die 2

Die 3

PCB

Substrate

Die 1

Interposer

Die 2

▪ 2.5DIC technology connects the die to

the substrate through a TSV interposer

– an extra passive layer with no

transistor

▪ Interposer lowers the risk of TSV

induced degradation but adds 1

extra layer

▪ 3.0DIC technology connects multiple dies vertically,

directly through TSV within each die

▪ True 3D technology eliminates extra processing

of interposer

▪ Advanced packaging process control required

to avoid damage during handling

VS.

2.5DIC

Mass pro-

duction

start

Examples

FPGA GPUCPUApplications

2010 -

remains nice

application for

high-end

servers

2013 - 14

with 28 nm

process

2015 - 16

expected

with 16/20

nm process

3.0DIC

Image

sensors MEMS

3D stacked

DRAM

2012 stacked

BSI CIS

2012 - 13 launch

of multi-ASIC

MEMS sensor ICs

2015 launch

expected using

HBM and HMC

technology

Hynix/MicronBoschSonyNVIDIA/

AMD

XilinxIBM/

Oracle

BACKUP

25

MEMS are replacing most conventional sensors needed

in IoT devices at a lower cost and better performance

SOURCE: Yole; iSuppli; IHS; expert interviews; GSA and McKinsey & Company “IoT collaboration”

1 Inertial measurement unit; consisting of up to 10 different accelerometers; gyroscopes; magnetometers; and pressure sensors

2 Bulk acoustic wave filters

Details on

next slideF

▪ Cost and size of

MEMS are

decreasing

while

performance is

increasing

▪ Integration of

MEMS into 1

building block is

on-going (e.g.,

IMU1 combos)

▪ Integration of

MEMS with

logic expected

in next 5 years

Wear-

ables

Smart

home

Connec-

ted cars

Medical

electro-

nics

Indus-

trial auto-

mation

Smart

cities

Accelerometer

Gyroscope

Flow sensor

Lab-on-chip

Magnetometer

Temperature

Microphone

BAW filter2

Pressure sensors

MEMS can be used across all IoT verticalsKey trends in

MEMSMEMS suitable

26

The recent price and volume developments of key MEMS components

can be seen as indicators that IoT growth is picking up

SOURCE: Analyst reports; expert interviews; GSA and McKinsey & Company “IoT collaboration”

F

10.00

0.10

1.00

0.01

161211 132009 171510 14 2018

1.00

1.25

0.63

2.00

1.58

0.79

0.50

13 1710 161514 201812112009

Oscillators

RF MEMSGyroscopes

Microphones Inertial combos

-5

-13

-14

-8

-9

CAGR

2009 - 18, %

6

35

17

80

57

CAGR

2009 - 18, %

Average selling price (ASP)

Volume

Price and volume development of key MEMS devices (normalized to 2013)

Past examples demand/cost correlation

Smartphones

Led bulbs

01

23

4

0

1,000

500

122003 04 06 09 1007 1105 08 2013

Units, mnUSD

Annual number of smartphones sold

ASP1 WLAN IC

ASP1 touch controller

0

10

20

30

40 80

0

40

60

20

18

USD bnUSD

2020171411 122007 15 1613100908

Market size (LED

lamp, LED luminaire)

LED price/klm

27

Wireless infrastructure is prepared for the rising demand in wireless

communications

1 Wireless penetration is measured as subscribers/population

SOURCE: Ovum, Verizon; GSA and McKinsey & Company “IoT collaboration”

G

Example 2: global wireless coverageExample 1: 4G LTE coverage in the US

Region

Total penetration1

Sep 2014

US/Canada 111%

Mexico / South America 115%

Western Europe 122%

Eastern Europe 146%

Middle East 113%

Africa 76%

Asia-Pacific 90%

World average 96%

The world is nearing 100%

wireless connectivity

Currently: 98% of the US

population is covered by LTE

28

Case example: Google is passing on economies of scale to

end customers by dropping prices for cloud storage and big data

SOURCE: “The Cloud Service Provider Market”; TechCrunch; press clippings; GSA and McKinsey & Company “IoT collaboration”

Google announces massive price drops

for its cloud computing services and

storage, introduces sustained-use

discounts

0.3

0.8

-68% p.a.

5.0

35.0

Before

April 1,

2014

After

-86% p.a.

Cloud

storage

USD/

month/

GByte

Big data

analysis

(Big-

Query)

USD/

TByte

H ILLUSTRATIVE

29

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




30

Challenges remain for unlocking full potential of the IoT for semiconductor

industry – survey results

Semiconductor technology challenges

(low power, integration,...)

Value extraction challenges (margins too low, costs too high, value captured by others, ...)

12.1

14.8

Addressable market challenges (too

fragmented, unknown/new customers, ...)15.5

Lack of common standards 16.3

Low customer demand

(no killer apps)16.4

Security/privacy issues 19.3

SOURCE: McKinsey and GSA IoT survey (n=229; VP-level+ executives from semiconductor companies); GSA and McKinsey & Company “IoT

collaboration”

1 Participants had a total of 100 points to distribute to challenges based on severity/importance of challenge (more points = more important)

Key challenges for success in IoT1

1

2

3

5

6

4

Average score from all participants (out of a total of 100 points)1

Security and

privacy are seen

as key

challenges to

IoT growth

The industry is

optimistic about

semiconductor

technology

challenges

31

The ease to resolve critical gaps varies by vertical INDICATIVE

SOURCE: Expert interviews; GSA and McKinsey & Company “IoT collaboration”

Higher inter-

operability required

to increase benefit

from home

automation

a

High certification

requirements and

varying regional

regulations slow

down market

development;

scattered market

with many small

players

b

Highest reliability

and safety required

for application in

cars (especially

autonomous driving)

c

Devices still require

significant techno-

logical advance-

ment (e.g., power

consumption and

form factor)

d

Critical gaps

Fragmented

markets4

Standards 3

Customer

demand2

Technological

advancement6

Smart home

a

Connected

cars

c

Medical

electronics

b

Industrial

automation

Smart citiesWearables

d

Value

extraction5

Security

and privacy1

Ease to resolve critical gaps

Easy to solve/no challenge Medium effort required

Difficult to solve/major challenge

32

Ease of resolution of critical gaps strongly

differ by vertical (1/2)


INDICATIVE

BACKUP

Security

and

privacy

▪ Data is often not critical

▪ Security and privacy

have comparably low

relevance

▪ Privacy, especially for

private medical data,

needs to be guaranteed

▪ Life supporting

functions have highest

security requirements

Medical electronics

▪ Security is essential to

prohibit accidents

▪ Regulatory

requirements raise the

security requirements

Connected carsIndustrial automation

▪ Security is crucial

for mission-critical

operations (e.g.,

automated

manufacturing)

▪ For functions like data

tracking or optimization

security not as critical

▪ Security is critical for

smart grid and traffic

control

▪ Security is less critical

for functions like energy

efficiencies or lighting

Wearables Smart cities

▪ Security is important to

prevent unauthorized

entry into home and 2nd

level attacks on home

automation

Smart home

Standards

▪ Wearables can use

existing connectivity

standards from

consumer electronics

like mobile phones

▪ Large consumer

electronics players can

leverage existing

ecosystems

▪ Government regulations

and system standards

needed for seamless

device integration

▪ Medical devices can

leverage standards

from established

consumer ecosystems

and established IT

infrastructure

▪ System and behavioral

standards still required

for autonomous driving

▪ Limited number of

automotive OEMs make

standard alignment

easier

▪ Standards are

advantageous for ease

of integration

▪ Proprietary systems are

feasible in industrial

environment but limit

speed of adoption

▪ Standards are required

to ensure

communication

between different

devices but that is only

critical within same

city/region (e.g., traffic

monitoring, traffic light

controls and weather

stations)

▪ Very scattered

landscape of competing

standards

▪ Large pool of

players from different

industries

▪ Interoperability of

devices would be very

important

3

▪ Customer demand

is increasing with key

players pushing (e.g.,

Apple, Samsung, Intel)

▪ Expect to take off in

2015/16

▪ IoT demand for specific

applications already

exists

▪ Adoption will be driven

by efficiency

improvements,

economic and

convenience benefits

for customers

▪ Reliability and

technology capability

are critical gaps for

broader demand

▪ Early prototypes

available but no large-

scale rollout yet

▪ Adoption will be driven

by economic benefit

▪ Customer demand is

currently very

application specific,

resulting in a scattered

market

▪ Some customer

segments are

traditionally

conservative/

slow with innovations

▪ Smart meters and grids

are building up in

America and Europe

▪ However, public

institutions are risk

averse, budget

restricted, and not

economically

incentivized to adopt

new IoT applications

▪ Industry players have

been focusing on

specific products, like

thermostats and fire

beacons

▪ All-in-one products

required to further

increase customer

excitement

Customer

demand2

1

Selection

of verticals



Difficult to solve/major challenge

33

Ease of resolution of critical gaps strongly

differ by vertical (2/2)

INDICATIVE


Frag-

mented

markets

▪ Market of industrial

automation is

fragmented and slow

moving, which takes a

long time to create

(long tail)

▪ Only limited amount of

players for connected

cars, and most have

clear market direction

(big OEMs, few new

entrants)

▪ Regulatory

requirements can

potentially slow down

market development

▪ Scattered market with

many players and

different types of

products

▪ Specific sub-segments

are developed (smart

meters) and relatively

standardized

▪ Many end markets

highly fragmented

▪ Market has already

been created by mobile

device players

▪ Potentially dominated

by a few large

consumer electronics

players

Techno-

logical

advance-

ment

▪ Even though many

devices are connected

to the power network,

technological changes

for low-power design

can extend use cases

and lower cost

▪ Lower cost is an

enabler to reach large

volumes faster

▪ Cost is less critical as

IoT is only a small

portion of total

equipment and

machinery cost

▪ Technology changes

for low-power designs

are not needed as cars

have their own power

generation

▪ Potentially, very

specific technical

requirements

▪ Chemical sensors,

miniaturization, and

lower power

consumption still

required to enable

some use cases

▪ Technology available

today

▪ Low-power designs for

many use cases not

crucial, as devices are

connected to the power

network

▪ Long-term autonomous

applications exist that

need better energy

efficiency

▪ Single devices already

have high level of

maturity; technology

advancement will

further improve usability

▪ Embedded systems still

need technological

advancement in terms

of power consumption

and size for certain

use-cases

6

Value

extraction

▪ Large markup on

hardware; system and

solutions cover a large

part of the added value

▪ Possibly, new business

models necessary

▪ Systems and solutions

cover a large part of the

added value

▪ Possibly, new business

models necessary for

component suppliers

▪ OEMs still have to

define business model

how to extract value

from connectivity/data

▪ Suppliers extract fair

share of value with

automotive grade

products

▪ Suppliers can possibly

extract fair share of

value with medical-

grade products (healthy

margins)

▪ Suppliers possibly can

extract fair share of

value for highly

specialized products

(with right business

model)

▪ Business model in

wearables is well-

defined from supplier to

OEM

▪ Suppliers extract fair

share of value with

components

5

4

Medical electronics Connected carsIndustrial automationWearables Smart citiesSmart home

Selection

of verticals

▪ Today, market is

developing, although

fragmented with many

players for different

smart home products

▪ In the future potentially

few consumer

electronics players

dominating



Difficult to solve/major challenge BACKUP

34

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




35

The Internet of Things faces new security and

privacy challenges


NOT EXHAUSTIVE1

Security is critical for all elements of the IoT stack

Cloud

LAN

Security on device level is

challenging due to low

performance/memory

Hub

IoT partly covering mission-

critical functionality (e.g., con-

nected car, electricity grid)

Sensitive private or

commercial data (e.g., health

data)

Exemplary security risks

▪ Snooping/blocking of commands/data transmission

▪ Injection/alteration of data or commands

▪ Delay of legitimate commands

▪ Use of hacked devices for other attacks

New security concepts and

solutions needed

▪ End-to-end security

across the entire stack

▪ Safe encryption requiring

minimal computing

resources

▪ Agile adaption to new

emerging threats without

user interaction

▪ Tampering/hacking

detection

▪ Compliance with

regulatory requirements

(e.g., on privacy)

36

Case example – spam botnets are starting to include smart IoT

devices, such as TVs and refrigerators

SOURCE: Proofpoint; GSA and McKinsey & Company “IoT collaboration”

1

▪ Large attack between

Dec 23, 2013

and Jan 6, 2014

▪ Besides “things,” also

conventional devices,

such as desktop

computers, laptops,

and mobile device

used

▪ Attack using simple

exploits, such as

default passwords and

misconfigurations

25% of attached devices were

misused during the attack

Few e-mails per

device

3 waves of spam

per day

Connected

multi-media

centers

TV sets

At least 1

refrigerator

Total of > 100,000 devices

in botnet

< 10 emails

per device

> 750,000 spam

e-mails

Home-

networking

routers

Increased out-of-the-box security needed for IoT devices

Cyber attack using IoT

devices

37

Ensuring privacy – IoT-driven increase of data collection requires

end-to-end security and potentially regulation

SOURCE: Österreichische Bundesarbeitskammer; GSA and McKinsey & Company “IoT collaboration”

1

IoT as a “threat” for privacy

Usage of private

information by

companies in a

legal way but to

consumer’s

disadvantage

Illegal data

exploitation

B

A

Description Example

Multiple scenarios

Espionage for private information

(e.g., by criminals, hostile

organizations)

Illegal exploitation through

backdoors or vulnerabilities

Loss of control

Data given to corporations cannot

be easily deleted

Data is resold or is inherently

connected to operational data without

consumer knowledge

Imbalance

Companies have detailed

customer information without

consent

Detection and use of very private

information (e.g., pregnancy by

retailers)

Wrong data

forecasts

Analyses have inherent faults

possibly causing discrimination

against individual users

Refusal of credit due to duplicate

names

Discrimination/

exclusion

Companies have the know-ledge

to discriminate against individual

customer groups

Loss of health insurance (e.g., due to

detection of high cancer risk)

Each cause needs specific solutions

▪ Strong end-to-end security is a must for all IoT devices

▪ Transparent regulations needed to ensure appropriate

data usage and to provide legal clarity for companies

A

B

38

Security requirements for IoT vary by segment

1 For example; Germany requires smart meter data to be hardware encrypted

1


Trans-

mission

encryption

Data storage

encryption

Device operating

system encryption

Hardware encryption

Non digital,

physical security elements

Software

Hardware

Physical

Light

Strong

▪ Certificate management

Indus-

trial

Smart

home

Wear-

ables

Additional regulatory

requirements exist in

some regions1

Con-

nected

car

▪ Public key cryptography,

e.g., SSL

▪ VPN

▪ IPsec

▪ Secure memory

▪ Software obfuscation

▪ Secure bootstrap

▪ Hardware-implemented

de/encoding algorithms

▪ Hardware random number

generators

▪ Physically unclonable

functions

▪ Quantum transmissions

Typical requirements by segmentLevel of security Security concepts/examples

NOT EXHAUSTIVE

39

loT security is an opportunity for a vertically integrated play

from semiconductor companies through growth or collaboration

1

“Organic" opportunity Partnership opportunity


End-to-end security

needed for IoT stack

Applica-

tion/

cloud

Trans-

port/

hub

“Thing”

A) Move upwards B) Expand from the middle C) Move downwards

Organic development of capabilities may not be in a short time

▪ Collaborations, partnerships, or M&A are viable strategic options

Semiconductor

manufacturer

core competency

Knowledge

of low-level

(hardware)

security

provides

advantage in

designing

higher-level

(software)

security

Network equipment

manufacturer core

competency

Many key

competencies in

transport layer

security design

are applicable

to the application

layer

Hardware design

capabilities are

needed for

offering an

integrated

solution

Application

designer key

competency

Control of

application

interfaces

and/or

customer

access can

provide an

advantage in

defining low-

level

designs/arch-

itectures

End-to-end

security offer

40

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




41

A lack of market demand is a growth inhibitor for IoT – semiconductor

players can help customers to create demand

SOURCE: Navigant; IHS; SBD; GSA and McKinsey & Company “IoT collaboration”

2

1 FAE:Field application engineer

Lack of profitable use cases

▪ Verticals have IoT products, but lack a profitable use cases

Missing customer capabilities

▪ Use cases with economic added value exist, but customers have yet to buy in for

IoT’s added value

▪ Many B2B customers do not know how to leverage the connectivity of “things”

and how to create economic value

Necessary approach to

help stimulate demand

▪ Provide open platforms

and an ecosystem to

facilitate use case

development

▪ Educate customers and

build customer

capabilities (e.g., with

dedicated sales force,

FAEs1)

▪ Complement

semiconductors with

software to enable

customers to use products

more easily

▪ Develop different levels

of development support

depth depending on

customer needs

Inflection

enablers

Ecosystem

Market

Smart

home

Smart

cities

Con-

nected

cars

Medical

electro-

nics

Industry

auto-

mation

Wear-

ables

Technology

Status inflection enablers today by IoT vertical

42

Major semiconductor players are building software eco-systems

around their products

SOURCE: Company websites; press search; GSA and McKinsey & Company “IoT collaboration”

2

2009 2010 2011 2012 2013 2014

Acquired Mashery’s

API management

software in May

2013

Updated BeeKit

wireless

connectivity toolkit

in Jan 2013

Partnered with

Thingsquare wireless

connectivity platform

in Mar 2013

Acquired McAfee

security software

in Feb 2011

Acquired Aepona’s API

exposure and

monetization software

platforms in May 2013

Released Onebox IoT

gateway

Sep 2013

Joined ARM mbed

project in

Dec 2013

Released iNEMO

filtering and predictive

software tool in Mar

2011

Acquired Wind

River embedded

software in

Jul 2009

Relaunched Intel

Services Division in

Jul 2014

Updated Code-

Warrior software in

Apr 2014

Released 2net

Mobile software

platform in

Sep 2013

Launched AllJoyn

IoT software

framework in Feb

2011

Released Internet of

Everything Devel-

opment Platform in

Jan 2013

Acquired 2,400

software and mobile

OS patents from HP in

Jan 2014

Released CSRmesh

BT protocol in Feb

2014

Merged with SiRF in

Jun 2009, inte-

grating its GPS

software tools

Released Harmony

software framework

in Sep 2010

Released VibeHub

networked audio

platform in Jan 2014

Updated µEnergy

BT platform in

Jun 2013

Partnering strategy

with players across

IoT value chain

IoT strategy

(outside-in perspective)

M&A strategy targe-

ting verticalization of

IoT by building

software/service

capabilities in house

Development of

connectivity soft-

ware to complement

processor/MCUs

Development of

connectivity soft-

ware to complement

processor/MCU

products, selected

acquisitions to

strengthen

technology portfolio

Announced new

open development

platform in Nov

2014

http://en.wikipedia.org/wiki/File:QualcommLogo.svg


43

Open-source hardware can be an enabler for start-ups and hobbyists

to enter into IoT device development

SOURCE: Press clippings; GSA and McKinsey & Company “IoT collaboration”

2

Openness levelsOpen-source

hardware

players

openPicus,

Electric Imp,

Spark Labs

Arduino,

Adafruit,

SparkFun,

OLIMEX

Applications

for product

IoT devices

built by start-

ups, larger

device

manufacturers

or individuals

DIY/Maker/ho

memade

IoT devices

Business

model/concept

Basic enabling of

IoT devices (e.g.,

providing connec-

tivity backbone for

IoT devices made

of hardware,

software, and/or

cloud service)

Supply for maker

community (i.e.,

components, frame-

works, and instruct-

tions for home-

made electronics,

many of which are

IoT “things”)

Implications for

semiconductor

players

Can stimulate

demand from

smaller cus-

tomers such as

start-ups due to

reduced devel-

opment costs and

generally reduced

time to market

Low unit counts

not worth their own

development, can

be a (small)

market for

existing ICs

Circuit

layout

Elect.

circuit

Firm-

ware

IC

design

Mech.

design

Rele-

vance

for IoT

44SOURCE: GSA and McKinsey & Company “IoT collaboration”

IoT customers have a broad range of demands with a need

for tailored platform offerings and targeted customer support

1 Operating systems

High customer involvement No customer involvement

2 PRELIMINARY

Types of IoT end customer

Company example

Key customer

needsRequirements for product offering

Start-ups

Large

consumer

electronics

Large

industrial

electronics

August

Nontraditional

companies

Tra

dit

ion

al e

lec

tro

nic

s

Full turnkey

solution from

chip design to

manufacturing

Full customer

support to enable

maximum

customization/

performance

Highly flexible

solution offering

using off-the-shelf

components

Product con-cept design

Solution development

Level of customer involvement

Frequent use of standard OSs1, e.g. iOS, Android

Industrial-specific OS1

(e.g. RTOG)

Mostly outsourced

Device manufacturing

Lack of experience in device/solution development (opportunity for partnerships with third parties)

▪ Low cost

▪ Fast time-to-

market

▪ High variability

▪ Ease of

development

▪ Performance

▪ Reliability and

security

▪ Compatible with

legacy system

▪ Low total cost

of ownership

▪ Help with

product design

▪ Integrated

solution project

convenience

45

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




46

1 Gbps

100 Mbps

100 Bps

10 Mbps

1 Mbps

100 Kbps

10 Kbps

10 Bps

100 km10 km1 km100 m10 m

Data rate, Log scale

Range, Log scale

IoT standards are not yet mature –

connectivity example

SOURCE: Expert interviews; company websites; press research; GSA and McKinsey & Company “IoT collaboration”

Current wireless connectivity standard landscape

NOT EXHAUSTIVE

1

2

1 Preliminary specs

LTE Cat. 01

Widely adopted

Established, adoption ongoingNew standard

Power consumption, indicative

802.11ah

4G

High

Low

3

1 Many competing standards

for low and medium-low

data rate hinder growth for

many IoT applications

▪ Interoperability missing

▪ Consortia wars might

be emerging

▪ Additional incompatibilities

in higher communication

layers (e.g., 6LoWPAN vs.

Zigbee)

2 Standard whitespace for

low-data rate, low-power,

high-range applications

such as smart grid

▪ WiFi/LTE power

consumption is too high

▪ Alternatives with low

power and a wide range

(e.g., LTECat. 0,

802.11ah, SIGFOX, On-

Ramp) are in very early

stages

47

Different approaches exist for developing

standards for the Internet of Things

ILLUSTRATIVE –

SELECTED EXAMPLES ONLY

Interest group Open standard initiative

1 Apple is using a Bluetooth specification that requires special connectivity chips

IoT standardization effortsIndustry player

SOURCE: Press clippings; company websites; GSA and McKinsey & Company “IoT collaboration”

3

API/

Ser-

vices

Conne-

ctivity

Appli-

cation

All-

Joyn

Intel Gateway

Solutions

Google

/Nest

Apple1

HomeKit/

HealthKit

Qivi-

con

Industrial Internet Consortium (IIC)

Wi-Fi, cellular IoT, LTE-MTC, Bluetooth, ZigBee, Z-Wave, SIGFOX, RFID

Open Inter-

connect

Consortium

(OIC)

Smart

home

Smart citiesConnected

cars

Medical

electronics

Industrial

automation

Wearables

48

Semiconductor players need to pursue well-thought out

strategies in IoT landscape of immature and missing standards


Deep-dive3

▪ All players should

– Pursue a hedging strategy with a

focus on standards that meet the

criteria for high likelihood of success

– Actively support industry

associations in promoting standards

– Use collaborations with other

industry players to drive

standardization

▪ Large players can act more

independently due to sufficiently large

volumes and can potential be driving

forces in establishing standards

Depending on company type, different

approaches are required

▪ Multiple

competing

standards are

available in some

domains

▪ Standardization

is still missing in

many areas in

verticals and layers

of the stack

Development

of standards is

still in progress

▪ Holistic roll-out

with many

participants/

devices

▪ Strong

ecosystem

available

▪ Clear value

proposition for

key stakeholders

Good standards

must fulfill key

requirements

49

Successful standards exhibit common key characteristics NOT EXHAUSITIVE


3BACKUP

▪ Success of 5 different connectivity

standards in the US was investigated

▪ LTE, Bluetooth, WiFi, and 3G CDMA

came out as winners while WiMax did

not succeed

▪ Winners shared key characteristics in

their strategies

Analysis of connectivity standards Common factors for successful standards

Successful rollout

Rapid and scaled deployment

Ease of implementation

Push & commitment from lead players

Strong partnerships

Strong ecosystem

Highly available products and services

Large accessible market

Open/accessible standard

Common value across key stakeholders

Clear value to stakeholders

Low cost/investment to adopt

Strong interest group or association to

align players

50

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




51

IoT device specifications vary significantly within a

multidimensional solution space, depending on application

SOURCE: Press research; GSA and McKinsey & Company “IoT collaboration”

EXEMPLARY IoT VERTICALS4

Smart

meter

Power consumption

Recharge cycle

Connectivity

Transmission speed

Connectivity

Transmission distance

Data processing

Computation speed

Data processing

Memory capacity

Communication security

Form factor

Price of IoT chipset

Every

year

Every

few days

Permanent

<Kbits >Mbit/sKbits/s - Mbit/s

1m >1km100m

Low High

< MB GBMB

None StrongLight

Irrelevant mmcm

USD 0.01 > USD 100USD 1

Smart

watch

Industrial

automation

52

ILLUSTRATIVE

CALCULATION

▪ IoT device specifi-

cations vary along

multiple dimensions

– Power

requirements,

lifetime

– Connectivity

– Form factor

– Performance

– …

▪ Traditional R&D and

marketing approach

would include the

design of an

application-specific

product

▪ Minimum volume is

required to breakeven

with each product –

minimum volume

depends on product

complexity

74

SOURCE: McKinsey Numetrics; GSA and McKinsey & Company “IoT collaboration”

1 Assumptions: R&D cost USD 12 mn for low-complexity IC design and USD 45 mn for high-complexity design; 5-year product lifetime; market with 10

competitors; ASP USD 3.00 in year 1; thereafter 10% price decline per year; gross margin of 55%

20

High-

complexity

design

Low-

complexity

design

Wearables:

~22M units –

Smart grid:

~100M units

Most IoT

verticals: very

small volumes

per specific

application with

a few thousand

to a few million

units per year

Annual shipments, mn

4 Many small IoT market segments cannot be profitably addressed

with a traditional business model for integrated devices

▪ Allows to cover many

IoT markets with small

annual volume

▪ Requires

identification of IoT

device archetypes,

even over different

verticals

▪ Needs definition of a

common-ground

platform for each of

these archetypes

Breakeven volume in different market environments1 A platform strategy

is necessary

53SOURCE: Interviews; press clippings; company websites; GSA and McKinsey & Company “IoT collaboration”

Platform strategy if it is possible to identify device archetypes

that cover several different IoT verticals

EXEMPLARY4

IoT requirements by vertical/application

Industrial

auto-

mation

Medical

elec-

tronics

Con-

nected

cars

Smart

home

Smart

cities

Accessories w/o screen

Home surveillance

Lighting system

Home automation

Smart metering

Field monitoring

Entertainment system

Clothing/ shoes

Accessories with screen

Hospital patient/asset

management

Personal health

monitoring

Preventive maintenance

Supply chain monitoring

Traffic control

Public surveillance

> 1Mb < 1Mb

eMemory

Enhanced Basic

Security

Med.

Processing power

< 100 Mhz

Mobile broadband

Connectivity range

Long Short

BLE, Zighee, WiFi

LowHigh

> 700 MHz

Wear-

ables

Low

Power

Low-end

commodity

▪ Low processing

▪ Short-range RF

▪ < 1Mb memory

High performing

▪ Very high (AP-

like) processing

▪ Long/short-

range RF

▪ > 1Mb memory

▪ Enhanced

security

Medium-end

▪ Med processing

▪ Short/long-

range RF

▪ < 1Mb memory

▪ Enhanced

security

High-level

IoT device

archetypes

Simplified and illustrative view – semiconductor players will need to analyze which

applications can be served by 1 archetype platform on a more granular level

54

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




55

Semiconductor companies need to identify new ways how to extract

“fair share” of overall value generated by IoT for themselves

5

SOURCE: McKinsey Global Institute; Cisco; expert interviews; GSA and McKinsey & Company “IoT collaboration”

Opportunities for value extraction

▪ Complement components with software

to provide a more comprehensive solution

▪ Use security to span all elements of the

technology stack and extract value from

offering end-to-end solution

▪ Offer system integration services for IoT

devices

▪ Investigate opportunities for new business

models in IoT that go beyond selling

hardware

▪ IoT is expected to create an overall

value of > USD 5 trillion by 2025

▪ End-users and consumers will

benefit from this value creation

through IoT applications

▪ Companies within the IoT

technology stack will also be able to

capture a share of the created value

▪ How to extract a fair share of the

overall created value for

semiconductor companies is an

unresolved question

▪ High value extraction by IoT service

providers and cloud players might

diminish available value for

semiconductor companies

56

1 Outside-in analysis

The semiconductor industry has started to integrate

along value chain and is building up software capabilitites

SOURCE: Company websites; press search; GSA and McKinsey & Company “IoT collaboration”

Inhouse

M&A

Collaboration

5

▪ Primary focus

is on

connectivity

and inter-

operability

▪ Most

companies

complement

in-house

software

development

with M&A

and/or

collaborations

▪ High share of overall

created value by IoT is

created in Internet/

cloud part of IoT stack

(expert estimates: up

to 80 - 90%)

▪ Small share of value

created in things is a

risk for semiconductor

players failing to

capture fair share of

overall created value

▪ Adding

complementary

software to sold

semiconductor devices

is an opportunity to

increase captured

value for

semiconductor players

via a more holistic IoT

solution

Applica.

specific

Interop-

erability

Connec-

tivity OSSecuritySensor

Software/API functionality – selected players1



57SOURCE: Press research; Business Model Generation by Osterwalder/Pigneur; GSA and McKinsey & Company “IoT collaboration”

With proliferation of IoT, there are opportunities for completely new

business models – potentially also for semiconductor players

NOT EXHAUSTIVE

5

Hardware

centered1

Generate revenue from the sale of

devices that are sometimes bundled with

a free service

▪ Google/Nest offers a home automation hardware

product (smart thermostat) that can be controlled

remotely from any device

Freemium7

Provide a free basic service and attempt

to upgrade customers to a paid, premium

service

▪ Fitbit provides free software with the sale of its

hardware

▪ Additionally, users can upgrade to the premium app

that offers additional features

Closed

ecosystem6

Tightly integrate hardware, software,

and services to incentivize customers

to stay in a company’s closed ecosystem

of products

▪ Apple controls the entire user experience by selling

a set of hardware products with a layer of free

software and paid services on top

Professional

services5

Provide data analytics, IT consulting,

business intelligence, and cyber security

to B2B customers

▪ Microsoft’s cloud offering Azure, has specialized IoT

service offerings that enable enterprises to perform

real-time analytics, machine learning, etc.

Data driven3

Leverage customer/system data to offer

better services/pricing, improve product

design, and optimze performance

▪ GE uses operational data from sensors on its

industrial machinery and aircraft engines to provide

services such as efficiency optimization

Adjacent rev-

enue streams8

Utilize information gained to open,

adjacent revenue streams (e.g., location-

based advertising, data selling)

▪ Google’s wearable product Glass will enable

companies to target customers based on location

IP centered2

Generate revenue from licensing out IP

building blocks; additional revenue by

supporting development of IP

▪ ARM offers licenses for computer processor

architecture built around its own proprietary RISC

technology

Description Example of business model

Platform4

Provide a software-based infrastructure

for enterprises to deploy IoT solutions

▪ PTC’s Axeda machine cloud offers its enterprise

customers a complete M2M and IoT data intergration

and application development platform

58

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6

▪ What can be done to continue the technological improvements towards

low-power and low-cost IoT devices?


Security and

privacy1



Platform

strategy4


Value

extraction5




59

10,000

100

1

0.01

2015102000

1

100

10,000

0.01

0.0001

20151020001992

Technological advancement in Iow power, device performance and

device size is necessary to unleash full potential of IoT

SOURCE: Deloitte; drpeering.net; cmu.edu; postscapes.com; Texas Instruments; GSA and McKinsey & Company “IoT collaboration”

10,000

100

1

0.01

20151020001992

c Details on next page

222 0.01

10,000 0.03

1,200 0.63

Storage

USD per GB

Computation

USD per

1 mn

transistors

Connection

USD per

Mbps

Cost advancement of semiconductors has gone a long way

But still more development

needed

▪ Today, many IoT applications

technically solvable but have

long development times,

high product cost, or still

immature features (e.g.,

form factor, run time)

▪ Technological

advancement is required to

unleash te full potential of IoT

– Lower power

consumption, increased

run time

– Integration, smaller

form factor

a

b

5

60

Evolution of battery technologies

Emerging battery technologies may help enable low-power IoT

applications, but they are not sufficient alone to enable the IoT

SOURCE: International Energy Agency; expert interviews; company websites; whitepapers GSA and McKinsey & Company “IoT collaboration”

Emerging technology

Wirelessly chargeable

batteries that can be powered

over the air (e.g. using a RF

signal)

Fuel cells convert chemical

energy from fuels (e.g.,

hydrogen) into electricity

Energy harvesting is the

process of capturing minute

amounts of energy from natural

sources (e.g., solar, thermal,

wind) and could enable battery-

free devices

Pioneers (examples)

Thin-film batteries are printable

batteries for applications that

require a thin form factor and

flexibility

0

100

400

50

2,000

Energy density, Wh/kg

1860 1910 1960 2010 2020 2030

Lead acid

25 - 45

Nickel iron

30 - 40

Nickel cadmium

35 - 60

Nickel-metal

hydride 50 - 75

Lithium ion with

Si nanowire 400

Li-air

~2,000

Lithium ion

110 - 140

6a

61

2 technology options are available for ultralow power in leading

edge chips: FinFET and FDSOI

SOURCE: Expert interviews; manufacturer websites; press clippings; whitepapers; GSA and McKinsey & Company “IoT collaboration”

1 Fully depleted silicon on insulator – smaller FD-SOI nodes are currently in development

6a

16/14 nm FinFET 28 nm FD-SOI1

Description

Thin silicon film

New technologies have an up to 70% reduced

power consumption and at the same time up to 60%

improved performance compared to 28nm bulk

Conventional planar transistor design

but with an additional ultra-thin

insulator layer (buried oxide)

Source DrainGate

Insulator

3D transistor design that is more

space- and power-efficient than

conventional planar designs

ManufacturingNew processes (e.g. double patter-

ning) and tools required to create 3D

shapes at 20nm node size

Current planar production lines can be

used with small modifications

Vendors

Intel, TSMC, Samsung, and

GlobalFoundries

STMicroelectronics, Samsung, and

GlobalFoundries plan to start

production

62

SoC and SiP solutions have significant advantages but are often only

viable for large-scale solutions

SOURCE: Product data sheets; ITRS; expert interviews; GSA and McKinsey & Company “IoT collaboration”

Technology comparison SoC (system on chip)SiP (system in package)

Better

WorseSiP SoCNon-

inte-

grated

Better

WorseSiP SoCNon-

inte-

grated

6b

Package

size

▪ Highest integration – smallest

footprint

▪ Vertically stacked chips can

reduce footprint

Power

con-

sumption

▪ Highest integration – lowest

power consumption

▪ Fewer and shorter interconnects

– lower power consumption

Flexibility

▪ Change of components requires

redesign of whole chip

▪ Individual components can be

replaced

Time to

market

(TTM)

▪ Longest TTM as silicon respin is

required for each die change

▪ Longer TTM means additional

complexity

Product

cost

▪ Highest economies of scale

▪ Simple packaging – lower

assembly costs

▪ Yields are typically lower –

~ 90%

▪ Higher economies of scale

▪ Complex packaging – higher

assembly costs

▪ Yields are typically lowest –

~ 80%

Develop-

ment cost

▪ Up to 3x R&D effort

▪ Highest design costs

▪ Up to 1.5x R&D effort

▪ High design costs

63

Integration of components into SiP or SoC requires access to several

technologies – close collaboration of several suppliers is necessary

SOURCE: Expert interview; GSA and McKinsey & Company “IoT collaboration”

6b

Traditional electronics value chain

IP pro-

viders

OEM

Connec-

tivity

Sensors

Memory

AP/MCU

Key trend for IoT

IP provider

collaborate with

chip manu-

facturer to build

an extreme low

power core

architecture for

IoT solution

1

Different chip

component

suppliers will

collaborate to

develop single chip

for IoT

2

Turnkey service

from chip to device

will be needed for

nonelectronic IoT

customers

3

2

Buy

SoC

3

1

IPChip

supplier

Devices/

solutionIP Chip supplier

Devices/

solution

PCB

assembly

▪ pushes

integration of

own MCU

technology

(e.g. with Bosch

Sensortec)

▪ Is developing

SigFox

transceiver/

MCU SoCs

IoT chip scenario

“Collaboration with leading sensor manufacturers will enable Atmel to provide customers

with the most appropriate sensor solutions, hereby reducing overall time to market,”

– Senior Product Marketing Manager, Atmel Corporation

EXEMPLARY\

COMPANIES

Semiconductor chip

manufacturers

http://semiaccurate.com/assets/uploads/2011/06/MIPS-logo.jpg




64

Contents

Key

strategic

challenges


players









realization of IoT



Customer

demand2




Technological

advancement6




Security and

privacy1



Platform

strategy4


Value

extraction5




65

IoT is an opportunity for the semiconductor sector, but it calls for new

business and operating models


I Identify application- and vertical-specific growth pockets

▪ Perform an in-depth assessment of market opportunity and

requirement for each IoT vertical/application

▪ Identify growth pockets that fit well with specific products/

capabilities of each respective semiconductor company

▪ Make bold moves if required to enter a specific

application/vertical

II Seek value beyond silicon

▪ Understand application- and vertical-specific value drivers for

the end-user (how does the consumer or enterprise derive

value)

▪ Identify opportunities beyond silicon (e.g., system integration,

software) to generate value for customers

▪ Test alternative business models to capture more of the

generated value (e.g., usage based)

III Revisit the operating model to cultivate and support IoT

innovation across more fragmented products and markets

(e.g., setup of organization, R&D investment approach)

▪ IoT presents an

opportunity for new

growth beyond

mobile

▪ IoT creates potential

opportunities for

value capture

beyond silicon

Strategic needs for individual semiconductor players

66

Identify application- and vertical-specific growth pockets –

diverse opportunities exist for IoT plays

I


Verticals

Products

(Embedded)

sensors

Processing

chips

Devices

Software/alg-

orithms

Servers/

infrastructure

Connectivity

chips

End-user

applications

Cloud services

Wear-

ables

Medical

electron-

ics

Con-

nected

cars

Industrial

auto-

mation

Smart

home

Smart

cities

Silicon

System

inte-

gration

Appli-

cations

Many opportunities

for players to find

profitable niches,

(depending on a

company’s specific

capacity profile), for

instance:

▪ Player A

Expert in consumer

products with full

system integration

capability

▪ Player B

Expert in leading

edge IC with high

performance for pro-

sumer applications

▪ Player C

Expert in industrial

high reliability and

security ICs

▪ Player D

Connectivity enabler

▪ Player E

Processing provider

with vertical-specific

connectivity solution

Player A

Player C

Player B

Player DPlayer E

ILLUSTRATIVE

67

Seek value beyond silicon – Opportunities further

up the value chain need to be investigated

II


Semiconductor players’ approaches to the IoT business model

Partnerships/alliances

Integration/M&A

Value chain

Classic hardware-oriented

semiconductor business

IoT as an opportunity to

sell more silicon

IoT as a new business model

across the entire stack

Software today consid-

ered prerequisite to sell

silicon – rarely useable

to capture more value

Differentiation by

applications focused on

end user – currently key

strategy of many players

Full integration to capture

all value – targeted by

some players but market

still too nascent to judge

(Embedded)

sensors

Processing

chips

Devices

Software/

algorithms

Servers/

infrastructure

Connectivity

chips

End-user

applications

Cloud services

Silicon

System

inte-

gration

Appli-

cations

Core semiconductor

business

Core semiconductor

business

Core semiconductor

business

ILLUSTRATIVE

68

Revisiting the operating model – enablers for growth in IoT


III

1 It is still contested in the industry if integration in unfamiliar territories (e.g., applications/product design, cloud services ) is an advantage or loss of focus

Organization

Business model

Approach to

portfolio /

technology

development

Capabilities

Investment

approach

▪ Limited number of large BUs

▪ Direct sales and FAE

▪ Application-specific R&D

programs

▪ Multi-market approach to diverse end

markets

▪ Leverage distribution sales channel

▪ Platform approach to R&D

▪ Largely HW based pricing

▪ Differentiation on features and

functionality in HW

▪ Explore business models based on usage

and value (e.g., usage based)

▪ Differentiation in SW and services (e.g.,

secure access)

▪ Application-focused roadmaps

(e.g., Automotive)

▪ BU driven R&D investments and

IP

▪ Platform approach to address multiple IoT

use cases across verticals

▪ Leverage third-party IP to build platform

(e.g., connectivity, image processing)

▪ Core IP development in design

▪ Application development with

medium to large customers

▪ IP integration for IoT platform designs

▪ Platform development: tools design kits,

developer communities

▪ System (board) level design capability

▪ Limited number of large portfolio

bets decided by BU lead

▪ Typically, biased investment in

core products vs. application

development

▪ Significant platform investments (tools,

user community, platform-level ICs)

▪ Small bets in many application markets

▪ Integration (M&A, alliances, partnerships)

distant from core as a key capability1

ToFrom

69

IoT will have particular implications on industry sub-segments and players

IoT requires bold

moves from IDM

and fabless players

Players need to choose strategy for IC design

▪ Platform approach – offer multiple chip platforms to serve across

verticals; derive value from scale

▪ Specialist approach – go deep into very selected verticals:

derive value from specialist ‘high performance’ applications

IoT drives a new

model for

competition of AP

and MCU players

Processor and MCU players migrate to compete for IoT SoC

▪ Processor players “move down” and offer more power and

cost-efficient mid/low-end solutions with existing integrated

functionality for connectivity/RF and sensor I/O

▪ MCU players need to “move up” to add connectivity/RF and

increased functionality for sensor integration

IoT recasts a

foundry opportunity

beyond leading

edge

Foundry players have potential to both drive IoT innovation

and benefit from increased demand at nodes beyond n-1

▪ Foundry innovation is required on lagging nodes: RF integration,

NVM integration, and new structures, ultra low power

architectures

▪ New volume for fabs at 40nm and above

Selected themes for specific segments and players based on value chain role

SOURCE: Executive interviews; GSA and McKinsey & Company “IoT collaboration”

the internet of things opportunities and challenges for … · 2019-10-11 · 4 contents key...

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