Semiconductor companies are caught in a merger frenzy, signing US$66 billion worth of deals this year alone, as they prepare for an explosion of demand from all walks of life.
That’s because the next technological revolution is taking hold: the Internet of Things.
As cars, crockery and even cows are controlled or monitored online, each will require a different kind of chip of ever-diminishing size, combining connectivity with processing, memory and battery power, according to Reuters.
These require makers to pool resources and intellectual property to produce smaller, faster and cheaper chips for a market that International Data Corp. said would grow to US$1.7 trillion by 2020 from US$650 billion last year.
By comparison, chip markets for personal and tablet computers are stagnant or in decline, and even smartphones are near peaking, said Bob O’Donnell, a long-time consultant to the chip industry.
“We’re very much done in terms of growth of those traditional markets,” O’Donnell said. “That’s why they are looking at this.”
Last month saw the biggest-ever chip merger with Avago Technologies Ltd. agreeing to buy Broadcom Corp. for US$37 billion. That eclipsed the US$17 billion Intel Corp. agreed last week for Altera Corp., and the US$12 billion NXP Semiconductors NV offered in March for Freescale Semiconductor Ltd.
On Friday, Lattice Semiconductor Corp. said it was open to a sale.
The Internet of Things relies on chips in devices wirelessly sending data to servers, which in turn process the data and send results to a user’s smartphone, or automatically tweak the devices themselves.
Those devices range from a light bulb to a nuclear power plant, from a smartwatch to a building’s air-conditioning system.
This range presents both opportunity and a challenge for semiconductor companies: their potential customer base is huge, but diverse, requiring different approaches.
Qualcomm Inc., for example, is used to selling chips to around a dozen mobile phone makers.
The Internet of Things has brought it business from quite different players, from makers of water meters to street lights that sport modems and traffic-monitoring cameras. All have their own needs.
“You can’t think the new market is just like the old one,” Tim McDonough, Qualcomm vice president of marketing, told Reuters in an interview.
Qualcomm estimates that the Internet of Things will bring in more than 10 percent of its chip revenue this business year.
And then there are those cows. Instead of monitoring herds by sight, farmers in Japan have tagged them with Internet-connected pedometers from Fujitsu Ltd. and partner Microsoft Corp. to measure when they might be ready for insemination. Cows in season, it turns out, tend to pace more.
This new business is pushing chip companies together in part to consolidate their expertise onto one chip, a trend forged by mobile phones.
The Avago-Broadcom deal, for instance, brings together motion control and optical sensors from Avago with chips from Broadcom that specialize in connectivity via wireless technologies such as Bluetooth and Wi-Fi.
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