Impact of IoT on Semiconductor Industry

IoT technology is in its formative years, but it provides a canvas for multiple technology sub-sectors to innovate. Semiconductor will be one of the most impacted industry in multiple ways. In this blog, we have evaluated the opportunities and challenges for the semiconductor industry in the IoT space.

Internet of Things (iot)
Source: Pixabay

Industry Applications

Semiconductor companies could supply products for hundreds of IOT use cases, including wearable devices, automated lighting and heating, and industrial automation (for instance, remote servicing and predictive maintenance). It is important to understand the IoT use cases and the expected adoption in these verticals to understand the impact on semiconductor industry.

Financial services, healthcare and retail which are early adopters of IoT and mainly develop external products & services. Some industries like manufacturing and energy & natural resources have widely adopted the IoT technology mainly for internal operations & processes.


IoT components are made with low-cost chips with slim margins. A very small portion of the financial value to be captured from IoT is likely to be in the “things”; the rest will probably be in how these things are connected to the Internet.

Moreover, given the broad range of use cases, semiconductor companies will have to design family of devices that are flexible enough to cater to the needs of multiple use cases with similar characteristics.

IoT in Semiconductor Industry
Source: GSA and McKinsey

There may never be a strong value proposition for components manufacturers to develop individual chips and systems for hundreds of thousands of discrete IoT industry applications.

The semiconductor players will have to find ways to participate in the broader ecosystem beyond the chips. To achieve design flexibility and to address the larger IoT opportunity, semiconductor players may need to rethink their approach to product and application development.

Major semiconductor companies such as Intel, ARM, and Samsung are already building partnerships with players across the ecosystem including OEMs, infrastructure, security, software and services companies.

Market Opportunity

Gartner predicts that there will be 26 billion connected devices by 2020 and the forecasts vary significantly with IDC predicting 32 billion and Cisco predicting 50 billion connected devices by 2020. The varied forecast for the number of connected devices and the market size for IoT evidently shows that there is a lack of clarity on the market opportunity.

The semiconductor industry is highly fragmented and hence adds to the challenge of sizing the market.  Also, the IoT devices has a complex architecture of semiconductor components such as microcontrollers, sensors, data transmission and memory chips which becomes a positive driver for semiconductor industry. It is critical to quantitatively evaluate these drivers and size the market opportunity for semiconductor industry.

According to Gartner, the processing, sensing, and communications semiconductor device portion of the IoT, which includes microcontrollers, embedded processors, and optical and non-optical sensors, will experience tremendous growth. When taken in context, Gartner says this sector will drive the overall semiconductor market, growing at a much faster relative pace. 

Mergers & Acquisitions

Semiconductor industry tops the chart of IoT related M&As with nearly 31% of the overall IoT related acquisitions. Semiconductor companies made 23 IoT related acquisitions between 2011 and 2015 which is highest compared to other industries.

The next distant follower is software companies which made 7 acquisitions during the same time. Semiconductor companies are also the lucrative targets for acquisitions with 15 companies being acquired only next to software companies of which 19 were acquired.

There is a huge jump of 8 IoT related semiconductor acquisitions in 2014 compared to 1 in 2013. 2015 is also geared up with 6 acquisitions till June. Will this M&A trend continue? What is the future of the IoT start-ups and midsize companies? We need further probing of the trend to predict better. 

Security & Standards

IoT devices are typically low-power with limited bandwidth and intermittent connectivity. Moreover, de-centralized interactions demand collection and analysis of incoming attack information in a distributed fashion. Malware and hacking will be the biggest threats in IoT.  Nature of attacks will be similar to that in computing devices.

Given the unique security challenges of the IoT ecosystem, IoT security solutions will have be a combination of hardware, semiconductor, and software-based endpoint considering cost, performance, and security trade-off.

A single standard will enable all these devices from different manufacturers to communicate securely with one another. However, currently multiple industry consortia are at loggerheads in the IoT standards war.

Standards war is not new to the technology industry (CDMA vs. TDMA, WiFi vs. WiMAX, HD-DVD vs. Blu-ray). However, in IoT the standards battles are unfolding on multiple fronts – connectivity, network, and applications. Semiconductor companies will have an important role to play on all three fronts.  

Technological innovations, growing demand, and evolving ecosystem will drive IoT maturity. Semiconductor companies are well positioned to help the IOT gain momentum, despite the obstacles ahead, provided that they embrace innovation and rethink their traditional business model.

This blog is written by Shulin Todkar and Karthick Paulraj from BRIDGEi2i

About BRIDGEi2i: BRIDGEi2i provides Business Analytics Solutions to enterprises globally, enabling them to achieve accelerated business impact harnessing the power of data. BRIDGEi2i, leveraging its vast experience is customer and marketing analytics, provides solutions tailor made for the travel and hospitality industry. To know more visit

Connect with us:
facebook  BRIDGEi2i on twitter  BRIDGEi2i on LinkedIn  BRIDGEi2i on Google+  BRIDGEi2i on YouTube