Semiconductors - the Next Wave - Opportunities and winning strategies for semiconductor companies April 2019 - Deloitte
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Semiconductors – the Next Wave Opportunities and winning strategies for semiconductor companies April 2019
Semiconductors – the Next Wave Foreword The ever-evolving semiconductor scene 5 Future of automotive semiconductors 12 Race is on for AI chips 30 Muted tone for M&A 38 Accessing the Chinese market 46 Digitalization is key to competitiveness 52 2
Semiconductors – the Next Wave
Foreword
Semiconductors are essential technology enablers that power
many of the cutting-edge digital devices we use today. The global
semiconductor industry is set to continue its robust growth
well into the next decade due to emerging technologies such as
autonomous driving, artificial intelligence (AI), 5G and Internet
of Things, coupled with consistent spending on R&D and
competition among key players.
East Asia (Mainland China, Japan, South Korea and Taiwan) is
where some of the world's most important semiconductor
players are located. The region has become a hotspot for the
semiconductor industry due to its burgeoning economy, the
rise of mobile communications and growth in cloud computing.
China, in particular, commands almost half of overall market
value, split roughly 50-50 between domestic demand and
Taiwan-based, world-leading ODMs (e.g. Foxconn and Quanta) or
foundries (e.g. Taiwan Semiconductor Manufacturing Company
[TSMC]) serving global clients. China also aspires to a self-
sufficient semiconductor industry and ascension to become a
global powerhouse at the same time. Japan, on the other hand,
is an important supplier of semiconductor materials, high-end
equipment and special semiconductors. Meanwhile, South Korea
has a commanding lead in the global HBM (high bandwidth
memory) DRAM (dynamic random-access memory) market.
M&A activity in the semiconductor industry has already peaked
and specialized verticals are becoming the primary focus.
Japan and Korea are seeking to revive their industries through
acquisitions, while the continuing trade war and disputes over
intellectual property will hamper China's ambition to go on a
global spending spree.
3Semiconductors – the Next Wave The semiconductor sector's growth trajectory will flatten somewhat as demand for consumer electronics saturates. However, many emerging segments will provide semiconductor companies with abundant opportunities, particularly semiconductor use in the automotive sector and AI. In the automotive sector, the adoption of safety-related electronics systems has grown explosively. Semiconductor components that make up these electronic systems will cost USD600 per car by 2022. Automotive semiconductor vendors will benefit from a surge in demand for various semiconductor devices in cars, including microcontrollers (MCUs), sensors and memory. Automation, electrification, digital connectivity and security will result in the addition of more semiconductor content to automotive electronics and subsystems in the next decade. The AI semiconductor scene has seen a race not just at the application level, but also at the semiconductor chip level, where different architectures are vying for a piece of the pie. The cloud is the biggest market for AI chips, as their adoption in data centers continues to increase as a means of enhancing efficiency and reducing operational cost. Finally, China has become a source of income for top global semiconductor companies, many of which generate over half of their revenue from China. Multinationals trying to access the Chinese market should consider a multitude of factors such as policies, technologies, marketing, logistics and global strategies. It is imperative for a multinational to realize the position it is in before entering China to come up with the best entry strategy. 4
Semiconductors – the Next Wave | The ever-evolving semiconductor scene
1
The ever-evolving
semiconductor scene
Robust growth expected and the inclusion of emerging
In the past few years, growth of the technology such as AI in products
global semiconductor industry has and 5G networks, as well as rapid
been driven largely by demand from growth in automotive and industrial
electronics such as smartphones electronics, will be some of the
and the proliferation of applications market's key driving forces. The
including the Internet of Things bulk of semiconductor revenue will
and cloud computing. The global come from processing electronics
semiconductor sector's total revenue (e.g. storage and cloud computing)
is set to increase from USD481 billion and communication electronics (e.g.
in 2018 to USD515 billion in 2019 wireless).
and continue its robust growth well
into the coming decade. Continued
enhancements of existing products
5Semiconductors – the Next Wave | The ever-evolving semiconductor scene
Figure: Global semiconductor sales revenue (2016-2022, billion USD)
542.64 billion (2022)
600 0.25
542.64
515.51 509.07 514.19
500 481.09 0.2
420.39 Communication
Electronics: 30.2%
400 0.15
345.85 Data
Processing
Electronics:
300 0.1 34.2%
Consumer Electronics:
200 0.05 9.3%
Automotive Electronics:
100 0 12%
Industrial Electronics:
0 -0.05 Military/Civil Aerospace 13.2%
Electronics: 1.1%
2016 2017 2018 2019 2020 2021 2022
Source: Gartner, Deloitte analysis
Automotive and industrial the semiconductor industry, with revenue
run-away segments from consumer electronics, data
Automotive electronics and industrial processing and communication
electronics are expected to be electronics set to grow steadily.
the fastest growing markets in the
6Semiconductors – the Next Wave | The ever-evolving semiconductor scene
Figure: Semiconductor revenue growth by electronic equipment type (2017- 2022)
Head Mounted Display：34.9%
Smart Watches：23.9%
ADAS：23.6% Automotive Electronics
Industrial Electronics
Other Wearables：22.9%
Consumer Electronics
EV/HEV：21% Data Processing
Communication Electronics
Security：18.5 % Military/Civil Aerospace Electronics
2017-2022 Other Industrial: 17.5%
GAGR Body：13.3%
Other Consumer：13.0%
Solid-State Lighting: 12.4%
Storage：11.8%
Instrument Cluster：11.2%
Automation：11.2%
Energy Management：8.5%
Infotainment：8.2%
Transportation：7.7%
Fitness wearables：7.7%
5%
0% 10% 15% 20% Mean：7.2%
Other Audio：6.1%
Chassis: 6.1%
Aftermarket：6.1%
Wired Communication：5.1%
Commercial Amusement：4.3%
Medical/healthcare：3.8%
Test/measurement：3.6%
Powertrain：3.4%
Appliances：3.0%
Military/Civil Aerospace Electronics：3.0%
Other Video：2.9%
Wireless Communication：2.6%
Safety：2.6%
Compute：1.9%
TV：0%
Digital Set-Top Box：-2.9%
video game consoles/handhelds：-4.0%
Digital Camcorder：-5.5%
Digital Still Camera：-7.1%
(Blue Laser)DVD Player/Recorder：-12.0%
Portable Media Players：-15.9%
Source: Gartner, Deloitte analysis
7Semiconductors – the Next Wave | The ever-evolving semiconductor scene
Consumption of automotive electronic Head mounted displays will be the Communication electronics include
components for safety, infotainment, main driver of semiconductor growth wired and wireless electronics. In
navigation and fuel efficiency will in consumer electronics. In addition, wireless electronics, traditional phone
increase for years to come due to wearables and smart watches will be and cellular modems will experience
ever-more electronic components new point of growth. However, other large declines, while smart phone
being applied in advanced safety consumer electronics markets, such demand will increase only slightly.
features added to vehicles. Among as DVD and portable media players, Revenue growth from the wireless
applications driving semiconductor will see sharp declines. Hence, the market could be quite slow. In wired
growth, advanced driver-assistance overall revenue increase of consumer communication electronics, enterprise
systems (ADAS) will have the largest electronics will be somewhat limited. WANs (wide area networks) deployed
increase. They will drive demand for as appliances should be the fastest-
ICs (Integrated Circuits), MCUs and Data processing electronics include growing segment.
sensors. computing and storage. Storage,
especially SSDs (solid-state drives), APAC appetite remains strong
Industrial electronics encompass will account for the largest increase. The Asia Pacific region will remain
security, automation, solid-state As the price declines seen in 2018 the world's biggest market for
lighting, transportation and continue, the trend towards greater semiconductor consumption. An
energy management. Security SSD adoption and increased average increasing proportion of Chinese
is the most substantial driver of capacity will retain strong momentum; products, which is stimulating the
industrial electronics. New memory particularly in enterprise SSDs as growth of the whole Asia Pacific
technologies enhance the energy data center demand will remain a key market, will be the major contributing
savings, security and functionality of driver. factor. In addition, more M&A will
IoT devices. benefit semiconductor sector growth
going forward.
Figure: Semiconductor sales by region (2018) Figure: Semiconductor sales growth (2018)
North America 19.60%
14%
10% Americas
Asia Pacific (exclude Japan) 14.50%
EMEA
Japan
6%
Asia Pacific
(exclude Japan) EMEA 13.90%
70%
Japan 9.30%
Source: Gartner
8Semiconductors – the Next Wave | The ever-evolving semiconductor scene
In terms of growth, the US had the Figure: Semiconductor sales in East Asia
fastest growth rate in 2018 due to
the rise of DRAM and high demand
for MCUs, especially in the storage
market. The Asia Pacific region
China Mainland Korea Taiwan Japan
has benefited from a boom in the
memory market as the rising price of
Source: Gartner
memory generated great revenue.
The integrated circuit (IC) industry
in Mainland China grew 24.8%,
making a major contribution to China playing catchup of the IT industry. By increasing
Asia-Pacific. Korean semiconductor In East Asia, Japan has held a leading added value, Taiwan should solve the
industry growth depends mainly position in the semiconductor downside in the IC design industry
on IC suppliers, particularly in the R&D and materials industry, with caused by a lack of capital and
memory chip market. On the other semiconductor giants including talent investment. China is taking up
hand, the semiconductor industry Toshiba, Sony and Renesas. South Taiwan's semiconductor market share.
in Taiwan is based on the foundry Korea and Taiwan are strong in Moreover, the expanding Chinese
model. However, price fluctuations memory and foundry, respectively. Mainland market will be a business
have harmed many foundries. This South Korea leads in DRAM and NAND channel for the IC design industry and
has prompted vendors in Taiwan and has many top semiconductor its companies will continue to invest in
to transfer some foundries into companies such as Samsung and SK the semiconductor industry in Taiwan.
Mainland China and re-prioritize to Hynix, mainly thanks to government Firstly, Mainland China can provide
focus on IC design in order to buck support. In terms of NAND, it is market support. The semiconductor
the price decline. As for Japan, as increasingly difficult for new players industry in Taiwan needs to be close
semiconductor companies have split to participate in the competition to the consumer market to support
and reorganized, they have exited due to the required accumulation of product innovation and economic
the DRAM business, which has low the technical know-how. However, of scale. Secondly, talent can be
technical value, and shifted focus South Korea also has challenges. provided to allow Taiwan to focus on
to exploit high value-added system The price of DRAM is falling and higher value-added product R&D.
chips. exports are declining. Hence, South
Korean semiconductor vendors are The Chinese semiconductor industry
devoting themselves to equipment is on an upward trajectory, with
and materials research as they seek to double-digit growth. Even though
expand into other sectors to tilt away the competitiveness of Chinese
from a heavy emphasis on memory. semiconductor vendors has improved
greatly in recent years, the industry
Taiwan has become the world's still relies heavily on key components
leading location for semiconductor from the West, resulting in a self-
foundry manufacturing. Taiwan's sufficiency rate of less than 20%. The
semiconductor foundry industry Chinese government has paid close
is dominated by two contract attention to this issue, promulgating
manufacturers, TSMC and United numerous favorable policies to
Microelectronics Company (UMC). strengthen the semiconductor
Semiconductor foundry is a mainstay industry.
9Semiconductors – the Next Wave | The ever-evolving semiconductor scene
Figure: Major players in the Chinese semiconductor industry
National Team Local Team
Headed by the likes of Big Fund and Under the guidance of Large Fund,
Tsinghua Unigroup, has invested many local governments have also
hundreds of billions of dollars into the set up local versions of IC investment
semiconductor ecosystem. fund.
China
Semiconductor
Players
Returnees Team MNC
Many returnees have participated in Intel, TSMC and other MNCs have
the development of semiconductor been in China for a long time. Many
industry in China, often backed by PE/ joint venture has been setup across
VC. China.
Broadly speaking, there are four participated in the development of Looming uncertainties from the
categories of players in the Chinese the semiconductor industry in China, Sino-US trade war
semiconductor industry—the including UNISOC and Veri Silicon, 2019 is destined to be a bumpy one
"National Team", "Local Team", PEVC Giga Device and Montage etc. These for the tech sectors of China and
funds and MNCs—each of them enterprises are normally founded the US. Tit-for-tat tariffs will likely
vying to make China a world-leading by returnees, focus on IC design and continue and could even escalate,
semiconductor powerhouse. The in most cases are backed by PEVC. if no agreement from both side
National Team is spearheaded by Among MNCs, Intel, TSMC and many can be reached in areas such as
Large Fund and Tsinghua Unigroup, other foreign-invested companies intellectual property, technology
which have invested hundreds of have been in China for a long time. transfer and cyber-attacks. The
billions of dollars in the value chain. In recent years, a growing amount of hardest hit sector in the trade war
The "Local team", on the other hand, foreign capital has paid attention to will be semiconductors, where the US
acts under the guidance of Large China opportunities. Global Foundries imports USD2.5 billion worth of goods
Fund, with many local governments has a factory in Chengdu. ARM and a year.
having set up investment funds such Qualcomm have established joint
as the Beijing IC Industry Fund and ventures in China. In particular, after
Shanghai SummitView Capital Fund. Taiwan loosened restrictions on
These local semiconductor funds high-tech investment in the mainland,
are estimated to have exceeded TSMC set up factories in Nanjing and
RMB200 billion. In the PEVC system, Unicom entered Fujian via Jinhua.
many overseas returnees have
10Semiconductors – the Next Wave | The ever-evolving semiconductor scene
Figure: China imports: IC chips vs Crude Oil Figure: US deficits with China
Computers & electronics $167.3
300
Electrical equipment $39.9
250
Misc.manufacturing $38.6
200
Apparel $29.3
150 Machinery $25.7
Furniture $23.4
100
Fabricated metal $20.3
50
Leather $19.8
0 Plastics & rubber $15.6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Textiles $11.6
Crude oil imports (billion dollars)
Chip imports (billion dollars) 05 01 00 1502 00
Source: Deloitte analysis
Currently, China imports over USD200 In the grand scheme of things, however,
billion worth of IC chips from the US, far the short-term impact of the Sino-US
exceeding its imports of crude oil. Any trade war on China's high-tech industry
hiccups in the semiconductor value chain may not be as big as it appears, since
will have a severe impact on other parts of the majority of IC chips made in China
the industry. As the trade war continues are absorbed domestically. The back-
to intensify, a handful of domestic and-forth trade war will in some ways
semiconductor giants and MNCs have force Chinese enterprises to innovate
begun to re-evaluate their positions in independently and accelerate the process
the supply chain. Apple, for example, has of domestic substitutions to ease future
long used China as its production base for risks.
everything from its signature iPhones to
iPads accessories. The company's supply
chain now spans hundreds of companies.
However, these suppliers may consider
shift some iPhone production away
from China should tariffs on US imports
continue to rise.
112
The future of
automotive
semiconductors
Surge in automotive electronic regulation and customer demand, the
systems adoption of safety-related electronics
The automotive industry has come a systems has exploded. Most of the
long way in terms of providing factory- automotive innovations taking place
installed electronics meant for safety today arise from electronics rather
and comfort. Back in 2004, only a than mechanics. The cost contribution
quarter of cars had airbags and less of automotive electronics increased
than 50% had factory-installed power from around 20% in 2007 to about
seats. However, due to government 40% in 2017.
12Semiconductors – the Next Wave | Future of automotive semiconductors
Figure: Factory-installed electronics
Interior Voice/Data
Lightering Communications
Accident Entertainment
Recorder Auto- Active System
Driver Dimming Cabin Noise Cabin DSRC
Battery
Alertness Mirror Suppression Environment Management
Monitoring Controls
Instrument Event Repair
Night Cluster Data
Vision Recorder Lane Correction
Head-Up
Display Electronic Toll
Collection
Windshield Digital Turn
Parental Wiper Control Signals
Controls
Navigation
Engine System
Airbag
Control
Deployment Differential
Adaptive Front EV/HEV
Lighting Security System
Adaptive Cruise Active Exhaust
Control Noise Suppression
Automatic Active Suspension
Braking
Hill-Hold
Electric Power Regenerative Control
Steering Braking
Electronic Throttle
Control Antilock
The Pressure Braking
Electronic Valve Monitoring
Timing Idle Stop/
Start OBDII Electronic
Drive Blindspot stability
Shaft Parking
Direction Seat control system
Cylinder Position
De-activation Remote Lane
Active control
Keyless Departure Active Yaw
Vibration
Entry Warning Control
Control
Transmission
Control
ADAS: uses sensors installed on the EV/HEV: hybrid vehicle that combines a Body: represents for vehicle components
vehicle to sense the surrounding conventional internal combustion engine itself, including power door, power
environment at any time of driving (ICE) system with an electric propulsion window, climate control and mirror wiper
process, which can collect data, detect system. control.
and track potential dangers.
Instrument Cluster: a control panel Chassis : the framework of an artificial
Powertrain: refers to series of parts and usually located directly ahead of a object, which supports the object in its
components that generate power on the vehicle's driver, displaying instrumentation construction and use.
vehicle and transmit it to the road surface. and controls for the vehicle's operation.
Infotainment: provides a combination of
Safety: includes active and passive safety Aftermarket: concerned with the information and entertainment based on
systems that reduce the risk of accidents, manufacturing, remanufacturing, vehicle integrated information processing
as well as their consequences. distribution, retailing, and installation system.
of all vehicle parts after the sale of the
automobile by the original equipment
manufacturer (OEM) to the consumer.
13Semiconductors – the Next Wave | Future of automotive semiconductors
The automotive industry has come a long way in terms of providing factory-installed electronics meant for
safety and comforts.
100% 100% 100%
80% 80% 80%
60% 60% 60%
40% 40% 40%
20% 20% 20%
0% 0% 0%
ABS Stability Control Side Airbags
2004 2017 2004 2017 2004 2017
100% 100% 100%
80% 80% 80%
60% 60% 60%
40% 40% 40%
20% 20% 20%
0% 0% 0%
Tire Pressure Sensors Rear Object Sensors Blind Spot Sensors
2004 2017 2004 2017 2004 2017
Electronic systems as % of total car cost
2030F 50%
Advanced driver assist Active-passive safety
2010 35%
Powertrain Radar/ vision infotainment
2000 22% Airbag ABS/ESP
1990 15%
1980 10% Electronic fuel injection
1970 5%
0% 10% 20% 30% 40% 50% 60%
Source: Deloitte analysis
14Semiconductors – the Next Wave | Future of automotive semiconductors
The cost of semiconductor content, from a surge in demand for various
i.e. the components that make semiconductor devices in cars, such
up electronic systems, has grown as MCUs, sensors, memory and more.
from USD312 per car in 2013 to By 2022, the figure is expected to
around USD400 today. Automotive reach close to USD600 per car.
semiconductor vendors are benefiting
Figure: Cost contribution of automotive electronics and semiconductor
content per car
700 Semiconductor price 50%
(per car) 45%
45%
600 40%
Automotive electronics cost 600 40%
(% of total car cost)
500 35%
475
27% 30%
400
25%
300
18% 300 20%
200 15%
150 10%
100
5%
0 0%
2000 2010 2020 2030
Source: IHS, Deloitte Analysis
Semiconductor vendors play a entire ecosystem for years to come.
critical role in the automotive Advances in technology such as AI,
industry supply chain. In the electric vehicles (EVs), autonomous
classic automotive ecosystem, driving, energy storage, and cyber
semiconductor vendors sell to security; social awareness of topics
Tier 1 electronic systems vendors, such as safety and ride-sharing;
which then integrate technology environmental concerns like pollution;
into modules and send these to the and economic considerations
automaker (OEM) for assembly. In including infrastructure spending and
recent years, the automotive industry growth in Asian markets are all set to
has been undergoing massive reshape the automotive industry.
transformations that will re-invent the
15Semiconductors – the Next Wave | Future of automotive semiconductors
Figure: Role of semiconductors in the automotive ecosystem
~10%Semiconductors – the Next Wave | Future of automotive semiconductors
Key words: Automation, electrification, connectivity
and security
Four mega trends will result in more semiconductor content
being added to automotive electronics and subsystems in the
next decade.
Figure: Mega automotive semiconductor trends
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Source: Deloitte analysis
17Semiconductors – the Next Wave | Future of automotive semiconductors
1. Automation Safety is a key selling point for will play a critical role in the shift to
Widely considered as the ultimate autonomous vehicles. However, autonomous driving. More sensors
goal for the future of mobility. getting to full autonomy (Level are required to enable autonomous
Automakers and Tier-1 suppliers, as 5), requires advancements in capabilities. The number of sensors
well as technology providers (e.g. technologies such as ADAS safety used in vehicles will increase as
semiconductor vendors) and smart systems that can reduce the number autonomy levels rise. At Level 4, the
mobility companies (e.g. ride-sharing of traffic accidents, including number of sensors could reach 29.
companies) not traditionally involved electronic stability control, lane These features will not be limited to
in the automotive industry, are all departure warning, anti-lock brakes, high-end cars, but will move into mid-
racing to develop and invest in related adaptive cruise control and traction range and economy models where
technologies. Semiconductor vendors control. All of these require complex volume movement is going to be
in particular are actively developing electronic components that include much higher in the next few years.
a wide-range of microchips, fusion high-speed processors, memory,
and system-on-a-chip devices controllers, sensors and data links
incorporating AI and machine learning to ensure the reliability and safety
technologies. of a vehicle. For example, sensors
Figure: Number of sensors for different levels of autonomous driving
AC C: Active Cruise Control Level 5 (2040)
LDWS: Lane Departure Warning System
AP Anywhere
LKA: Lane Keep Assist
PA: Parking Assist
AEB: Automatic Emergency Braking
Level 4 (2028)
DM: Driver Monitoring
AP: Auto Pilot Sensor Fusion
TJA: Traffic Jam Assist
~32
AP Highway
Ultrasonic 10
Radar LRR 2
Level 3 (2022)
~29 Radar SRR 6
AEB DM Camera for surround 5
Ultrasonic 10 Long distance cam 4
TJA Radar LRR 2 Stereo camera 2
Level 2 (2015) Radar SRR 6 Ubolo 1
Level 1 (Semiconductors – the Next Wave | Future of automotive semiconductors
2. Electrification 3. Digital Connectivity especially have an advantage in this
The need for cars to be more Then there is digital connectivity— area, due to their core capabilities
fuel-efficient, and the impetus advanced vehicle connectivity (V2I, and aggressive capital investment.
of government regulation to V2V, in-vehicle)—that connects both From a consumer's perspective, in-
lower emissions, are driving up the inside and outside of a car and car digital connectivity and content
semiconductor demand for both makes it a part of the Internet of will become the norm, particularly
traditional vehicles and EVs/hybrid Things. Automakers have begun to with Asian customers who consider
electric vehicles (HEVs). In today's provide operating systems (OS) to act entertainment a basic automotive
traditional internal combustion (ICE) as platforms for potential app stores, function with flawless integration
engines, there is still huge potential to as well as developed tailored apps, of their personal mobile devices.
lower CO2 emissions. Many sensors services and media content. Digital Connectivity is not just entertainment;
and controls are required to run an technology players are adapting vehicle-to-vehicle communication is
engine efficiently and significant their mobile platforms to cars and a critical technology for autonomous
improvements can still be achieved. developing in-car entertainment cars to realize driverless technology
The Chinese government, for example, platforms. Some media-streaming and avoid accidents. It is expected
will introduce the new "6A" emission services and device manufacturers that by 2023 over 90% of vehicles
standard by 2020 to further lower have formed partnerships with produced will be connected.
vehicle emissions. automotive OEMs. Digital tech players
At the same time, EV/HEV advances
require progress on the electrification Figure: Components of the connected car
of power trains. Governments in
many countries are beginning to
ban, or in the process of banning,
ICE-based cars completely. China is
Vehicle
targeting increased EV production by communication
automakers (10% of total production Firmware busses
from 2019). Many global automakers
have also set goals to have EVs
account for 15%-25% of their sales
Advanced/
within 10 years, thereby bringing autonomous Mobile
vehicle applications
EVs to the masses. As major OEMs systems
pursue their EV goals, growth of the
semiconductor industry will increase
Wireless
proportionally. Thus, conditions communications
are ripe for innovation in electronic
Connected
powertrain technologies that will vehicle
be used to reduce total emissions, services
thereby accelerating more demand for
semiconductors.
Infotainment Integrated
systems vehicle security
Source: Deloitte analysis
19Semiconductors – the Next Wave | Future of automotive semiconductors
4. Security vendors today are more focused than secured with no introduced back
As vehicles become more connected, ever on the safety and reliability of doors or Trojans, assess vulnerabilities
hardware and software platforms vehicles. in software and firmware, provide
will be increasingly exposed to over-the-air (OTA) updates and have
hacking risks. A failure in one vehicle Two levels of protection are being communications links.
component could have an avalanche considered to deter any potential
effect. For example, if vehicle threats. The first is developing policy Future states of mobility will
communications were attacked and establishing cybersecurity coexist
maliciously, advanced vehicle systems standards, so that manufacturers We envision that these
would not be able to receive vital can follow a rigorous process for transformations will create four
situational awareness information and establishing the safety of connected co-existing states in future mobility,
integrated vehicle security systems vehicles. Standards alone may not be where vehicle ownership diverges
(control braking, acceleration and sufficient, however, as automakers between the shared and the personal,
crash avoidance, etc.) would fail to and technology players will need to while vehicle control continuously
react. Thus, automotive electronics build components that are highly moves towards complete automation.
Figure: Future states of mobility
Vehicle
Control
Technology Landscape
Level 3 & Level 4 of Tech players and startups play
1 autonomy. Advanced a critical role with automakers.
Autonomous
driver assistance system Autonomous vehicle become
(ADAS). Cheaper economical.
1. Private 3. Shared technology.
Autonomous Autonomous
Connected vehicle. Level Little change to the existing
2 0 & Level 1 of ecosystem. Automakers
autonomy, adaptive continue to push unit sales.
speed steering, ABS, Tech players emerges.
speed control.
On-demand mobility High asset utilization, high
3
Driver-assist
services, entertainment, efficiency autonomous ride-
navigation, apps. sharing network. Greater
collaboration between players
2. Private 4. Shared in disruptive environment.
Automation Automation
Mobility and data-driven Ride-sharing proliferates.
4 services, mobile devices Multi-vehicle households
such as smartphone on reduces. Tech players to offer
Vehicle the rise. more personalized services.
Ownership
Private Shared
Source: Deloitte analysis
20Semiconductors – the Next Wave | Future of automotive semiconductors
In Private-Autonomous (state 1), automakers, technology players, fleet vehicles, such as ADAS and in-
vehicle ownership remains private, owners and regulatory bodies to vehicle infotainment (IVI), becoming
but the automation level has achieved create a complex urban ecosystem. an important growth market for
an all-time high due to decreases semiconductor players.
in the cost of technology, thereby In Shared-Automation (state 4),
boosting the number of autonomous where vehicle ownership is shared, a Asia Pacific the most attractive
vehicles. Collaboration between OEMs rapid increase in adoption of shared region
and technology players is the norm in mobility will emerge. Point-to-point Overall automotive semiconductor
this state. transportation will be created via revenue is projected to reach USD40
ride sharing and cost per-mile will billion (an all-time-high) in 2018,
In Private-Automation (state 2), where decrease. The landscape in this state before hitting USD60 billion in 2022.
vehicles are personally owned with will allow technology players to offer The Asia Pacific region is expected
limited ADAS. Auto OEMs will continue more enhanced and personalized to lead the world with 41% growth,
to focus on unit sales and bring in services. driven by supportive government
incremental technological advances. policy and consumer demand for
There will be little change in the Opportunities in automotive safety, particularly in China. China
ecosystem. semiconductors are emerging is now the largest market for the
Although mobile is, and will remain, automotive industry, with almost 29
In Shared-Autonomous (state 3), the largest market for semiconductor million cars sold in 2017. China is also
the majority of cars are shared with companies, overall growth has becoming a major auto-manufacturing
autonomous capabilities. In this been saturated for many years. The center, attracting global automakers,
landscape, there will be a rise in only exception is the automotive accounting for close to 29% of
on-demand mobility services such semiconductor segment, where worldwide light vehicle production. All
as entertainment, and we will see demand is strong as more electronic this makes the region highly attractive
deepened collaboration between components are being added to to semiconductor vendors.
Figure: Automotive semiconductor revenue and unit production by region
65
Automotive semiconductor revenue(billion of US$)
55
45
35
25
15
5
-5 2016 2017 2018 2019 2020 2021 2022
Powertrain Infotainment Body EV/HEV Chassis Safety Aftermarket ADAS Instrument Cluster
21Semiconductors – the Next Wave | Future of automotive semiconductors
ADAS to lead growth sensors and power semiconductors,
The growth of the automotive because in hybridization and electrical
semiconductor market depends vehicles, semiconductors are the
on electronic equipment and primary driver for the efficiency of the
semiconductor content growth electric drive train.
in vehicles. The ADAS application
segment is expected to have
the highest growth rate. ADAS
Asia/Pacific
semiconductor content will rise
along with the level of automation.
In fact, partially automated cars will EMEA
have about USD100 in added-in
semiconductor content, with a highly Americas
automated car potentially having
USD400 added. A fully automated
Japan
car would have about USD550 of
semiconductor content. In other
0.00% 10.00% 20.00% 30.00% 40.00%
segments such as powertrains, there
is huge demand for microcontrollers, Source: Gartner, Deloitte analysis
Figure: Average ADAS semiconductor content at different levels of automaton
Partial automation High automation Full automation
Level 2 Level 3 Level 4
$400 10% $550
12%
20%
35% 8%
60% $100 5%
25%
45%
40%
40%
a
r
r
on
M
a
r
r
on
s
M
a
r
r
on
rs
M
da
da
da
da
da
da
or
er
er
er
to
O
O
O
isi
isi
isi
at
m
m
m
Ra
Li
Ra
Li
Ra
Li
lB
lB
lB
ua
rF
rF
rF
tu
Ca
Ca
Ca
ta
ta
ta
t
Ac
Ac
o
o
o
to
to
to
ns
ns
ns
Se
Se
Se
Source: Infineon
From a device perspective, different will generate large demand for example, when vehicles reach Level
types of components will be sensors and microcontrollers as 4 or 5, systems need to be able to
required for increasingly complex well as processing for each of these process all sensor data to create a
functionality sets. Some segments sensors. The industry is also in the holistic view that allows the car to
will grow faster than others do. process of developing more powerful make the right judgement.
For example, autonomous driving MCUs/MPUs to handle the data. For
22Semiconductors – the Next Wave | Future of automotive semiconductors
Figure: Automotive semiconductor application and device growth (2022)
Segment Growth Size Sub segment
(2017-2022) (2022)
Blind spot detection/Collision warning/Park
ADAS 23.6% 11b
assistance/V2X/Front view camera
Aftermarket 6.1% 3b Vehicle parts/Equipment/Service repair/Collision repair
Power door/Power window/Climate control/Mirror wiper
Body 13.3% 12b
control
USD 600
by Application （Gartner)
semiconductor Chassis 6.1% 7b Suspension/Differential/drive shaft
content per car
by 2022
EV/HEV 21% 6b Hybrid vehicle
Infotainment 8.2% 9b Connectivity/Telematics/Car navigation/Car audio
Instrument Cluster 11.2% 4b Instrument panel, instrument wiring harness
Powertrain 3.4% 6b Engine Control/Transmission
Safety 2.6% 5b EPS/ABS/Airbags/Traction control/Tire pressure monitor
General-Purpose Logic IC Data Converter, Switch, Multiplexer, Voltage Regulator,
12.5% 2b
Reference
Memory IC 10.9% 4b DRAM, Emerging Memory, Flash Memory, NAND
Optoelectronics 18.9% 8b Image Sensor, LED, Photosensor
Discrete 9.9% 9b Power transistor, Diodes
by Device（Gartner)
Nonoptical Sensors Environmental Sensors, Fingerprint Sensors, Inertial
7.2% 6b
Sensors, Magnetic Sensors,
Micro-Component IC 7.7% 11b Digital Signal, Microcontroller, Microprocessor
Data Converter, Switch, Multiplexer, Voltage Regulator,
Analog IC 7.4% 4b
Reference
ASIC 6% 3b ASIC
ASSP 12.3% 19b ASSP
Source: Gartner, Deloitte analysis
23Semiconductors – the Next Wave | Future of automotive semiconductors
Seizing the opportunities these opportunities, leaders in the failure rate might be acceptable in
The automotive segment is not really semiconductor industry should the mobile space for suppliers, but
a new market for semiconductor consider the following actions and automakers will want less than one
vendors. In fact, many of them have approaches to the market: defective part per billion (DPPB) for 15
been participating in this market for to 20 years.
several years. However, it was not 1. Understanding the automotive
considered a big revenue source since sector's unique hurdles Furthermore, in the mobile world,
there were not enough customers, When it comes to requirements, the designs regularly reach 3GHZ,
it took a very long time to qualify automotive electronics market is where frequency and speed are
a process and volume was low vastly different from the consumer top priorities. On the other hand,
compared to consumer electronics. electronics market. For example, automotive frequencies and speeds
However, sentiment has changed consumers seek the latest, leading vary. But, as 5G-connected cars
due to rising demand for automotive edge technologies in cellphones. soon become a reality, the two
electronics such as ADAS, AI, However, in automotive, some domains might eventually merge, with
connectivity and sensors. To seize sensors are still being manufactured connected cars in a way become cell
at 150nm. This is because automotive phone-like. Automotive chips also
design requires substantial need to operate at a wider range of
redundancy and size is less of a temperatures: -40°to 155°centigrade
concern, so there is little incentive versus 0°to 40°centigrade for a
to move to 7nm sensors like those in mobile device. Voltages also vary
cellphones. In addition, the failure rate greatly between automotive and
requirement is much more stringent mobile. In mobile applications,
in the automotive space, because voltages are kept low to conserve
when a cellphone goes down a simple battery life. However, there are
reset can fix the issue, which is not high voltages in cars and many
possible for a car on the road. A 10% semiconductors are still analog, which
requires devices to operate correctly
in a wider range.
24Semiconductors – the Next Wave | Future of automotive semiconductors
Figure: Automotive IC requirements versus mobile This is especially important since
future autonomous driving will rely
on components working together
perfectly. How devices will fare over
time in a harsh external environment
28nm 7nm Process >180nm 7nm
is yet to be determined. A typical
100M+ Design Sizes(μP/C) 60V
0 40℃ Temperatures -40 155℃ It will be incumbent on semiconductor
vendors to conduct more simulation,
1-3 years Operation Lifetime ~10-15 years inspection and testing of larger
sample sizes to ensure reliabilitySemiconductors – the Next Wave | Future of automotive semiconductors
Table: Automotive semiconductor related M&A
M&A Amount (USD) Date
NXP/Freescale 118 million March 2015
Avago/Broadcom 370 million May 2015
Intel/Altera 167 million June 2015
Analog Devices/Linear 130 million July 2016
Softbank/ARM 302 million July 2016
Qualcomm/NXP 459 million October 2016
Intel/Mobileye 153million March 2017
Source: Mergermarket, Deloitte analysis
Thus, M&A should be considered an the best chance of producing high is also seen by Samsung as a new
integral part of an overall strategy quality components. M&A allows and profitable revenue stream.
to maintain competitive edge. The quicker access to this expertise to Samsung will expand its reach across
potential benefits M&A brings include strengthen competitiveness and the connected car market, ADAS,
filling gaps in product line, accessing increase market share. cybersecurity and over the air (OTA).
state-of-the-art technology and The acquisition also aligns with
gaining access to a wider customer Oversaturation of the smartphone Samsung's IoT universe strategy to
base. These are especially important market has pushed many big achieve volume.
in the automotive semiconductor semiconductor players to explore
industry, because it takes great effort possibilities in the automotive Meanwhile, Panasonic is refocusing
to secure long-term partnership semiconductor market to broaden its work from home electronics to
agreements with automotive their portfolios and diversify revenue high-tech auto parts, leveraging
companies. Added to this is the fact streams. The connected car provides its expertise in electronics to
that most automotive semiconductor an entry point for the expanded role build advanced capabilities in the
projects are lengthy, often taking semiconductor vendors can play. automotive electronics market.
years from concept initiation, product Panasonic has made several
development and qualification For example, Samsung acquired acquisitions in the last few years,
process all the way to production. Harman to build its infotainment coupling these with building
In addition, customers are seeking capability in connected cars. The autonomous driving capability
integrated, comprehensive solutions move allowed Samsung to gain a in-house. Panasonic has begun
from one company instead of many. foothold in the automotive market, testing autonomous cars, teamed
as Harman is a global leader in up with Google and Qualcomm on
From a technology perspective, connected autonomous vehicles. infotainment, and formed a joint
automotive semiconductor The acquisition not only allowed venture ( JV) in China to provide key EV
components have to adhere to Samsung to position itself as a key components.
stringent quality standards, and supplier of infotainment systems
semiconductor vendors with cutting- using an established brand name,
edge manufacturing capabilities have but the autonomous vehicle market
26Semiconductors – the Next Wave | Future of automotive semiconductors
4. Rethink collaboration models Players' roles are shifting and new or JVs, the roles in the supply chain
and roles players are rising. Customers are are blurring. As vehicles become more
The ecosystem and collaboration becoming partners or competitors autonomous, systems within them are
models of the traditional automotive and vice versa. From acting as a ever more connected and cannot run
semiconductor are no longer static supplier and forming strategic in isolation.
but more intertwined than ever. partnerships to entering M&A deals
Figure: The evolving automotive semiconductor supply chain
Classic automotive semiconductor supply chain New automotive semiconductor supply chain
Tier 1
Electronic
Systems
Tier 2 Tier 1
Semiconductor Electronic OEM
Vendors Systems
Tier 2
Tech & Digital
Semiconductor OEM
Players
Vendors
27Semiconductors – the Next Wave | Future of automotive semiconductors
This market landscape adds a layer applications. New tech entrants
of complexity to the existing supply are positioned to take the lead in
chain. Some automakers are now software-focused elements. Digital
designing their own IC (e.g. Tesla) and players are adapting their smartphone
extending their activities beyond core platforms to car-specific customer
hardware business into the provision needs, integrating infotainment OS
of software OSs designed to serve as and software platforms into car
platforms for potential app stores, as systems and cars' human-machine
well as developing specific apps and interfaces. Media-streaming
other services or media content. services and end user equipment
Other Tier 1 players are also manufacturers have already formed
designing ICs and getting involved in partnerships with some automotive
software. Continental's purchase of OEMs. Semiconductor vendors
Elektrobit is an example of this trend. can expand their roles by not only
Furthermore, semiconductor vendors serving traditional automakers and
are now developing electronic control their suppliers, but also through
units, as are some IC houses. collaborating with technology vendors
to offer more products.
Automotive suppliers are also trying
to become less dependent on OEMs At the same time, semiconductor this involved a few critical automotive
by establishing direct relationships vendors are increasing collaboration products such as infotainment
with end customers. For example, with both automakers and tier-one and display drivers, with critical
Bosch's app allows customers to automotive suppliers. For example, components such as power train
monitor car functions and provide Nvidia and Audi are collaborating or chassis control components still
a direct connection to the nearest to build an AI platform with deep made by IDMs themselves. However,
Bosch repair center. learning technology for autonomous the trend is shifting, as IDMs are now
driving. Utilizing neural networks outsourcing critical applications to
Technology players are applying to understand the surrounding foundries. For example, ADAS requires
their existing capabilities to digital environment and determine safe advanced MCUs but many IDMs do
automotive platforms. Tech players routing to incorporate into Audi's not have the in-house capabilities to
have significant advantages, including line of L3 cars. This type of strategic create them.
capabilities, operating models and partnership brings in skills from both
capital for aggressive investment, side that complement one other and
as they focus on making horizontal create a mutually beneficial situation.
moves to create new revenue
models. Several high-tech players Meanwhile, many IDMs have stopped
are developing autonomous-driving building leading-edge fabs and
systems that are quite likely to merge turned to "fabless/fablite" over the
into operating systems. Leading last 20 years due to leading-edge
online and technology companies fabs' prohibitive cost. But, they have
are focusing on in-car entertainment in general kept their proprietary
platforms, which they hope will processes in-house while outsourcing
become the standard for such some production to foundries. Initially,
28Semiconductors – the Next Wave | Future of automotive semiconductors
5. Keep an eye on start-ups and vibration and shock, wear and tear,
their disruptions and cleaning that is normal to the
Start-ups are a hotbed of activity harsh conditions of driving. Finally,
in connected cars, VRV/V2X there are still edge cases to be
communication, mobility services, resolved, such as bright sun against
cybersecurity and the AI/machine a white background, blizzards that
learning space. Investments in causes whiteout conditions and early
these auto tech companies have morning fog.
also seen huge increases in recent
years. There is a wide variety of There are several reasons why
startups in the industry to address semiconductor vendors should
different pain points. For example, pay attention to startups. First, the
new hardware startups are looking emergence of these startups in the
at ways to address the pain points connected vehicle space affords
associated with light detection and the opportunity to cooperate
ranging (LiDAR), which is integral to with them. Second, gaining access
the safety of autonomous vehicle. to technologies such as digital
First, LiDAR is still quite expensive and connectivity and AI will be increasingly
many big automakers do not use it; important for semiconductor vendors
second, (dynamic) range is a big issue and OEMs, as R&D cost and risk are
with the technology, i.e. how near, high. Third, these startups could
far and widely can LiDAR accurately be potential acquisition targets for
build a 3D picture from millions of semiconductor vendors to acquire
pixels. Robustness is another issue, innovative technologies or enter niche
with LiDAR having to withstand the markets.
Figure: Automotive startups' areas of specialization
Driver
Connected Car V2V/V2I/ V2X assistance/ Fleet Telematics
robotics
Safety Mobility LIDAR/ mapping
Cybersecurity
tools/system Services systems
Machine Computer
Autonomous
learning/ AI/ Vision/ UX/ Design
platforms
Deep learning/ Detection
Source: Deloitte analysis
293
The race is on for AI
chips
The race for AI chip domination "Depth" refers to the layers and
The artificial intelligence framework number of nodes in a neural network
can be broadly characterized into model. Over the years, the complexity
three layers. The infrastructure layer between layers and the number of
includes the core AI chips and big nodes have grown exponentially.
data that support the sensing and This presents a significant challenge
cognitive computational capabilities of for computation. Traditional central
the technology layer. The application processing units (CPUs) excel at
level sits at the apex, providing general workloads, particularly if they
services such as autonomous driving, are rules-based. However, CPUs can
smart robotics, smart security and no longer keep up with the parallelism
virtual assistance. AI chips form the required of AI algorithms.
heart of the AI technology chain
and are central to the processing of
AI algorithms, particularly for deep
neural networks (DNN).
30Semiconductors – the Next Wave | Race is on for AI chips
Figure: AI chips' role in the layers of AI
Flexibility
• Robotics
• Autonomous Driving CPU
• Business Intelligence (Intel)
• Smart Factory
Application • Personal Assistance
• Customer Service
……
GPU
• Machine Learning (NVIDA,AMD)
• Deep learning
Technology • AI Platform
• Speech Recognition
• Image Recognition FPGA
• Biometric (Xilinx, Altera,
…… Microsoft…)
• AI chips
• Sensors
Infrastructure • Computing ASICs
• Data (Google, Horizon
…… Robotics, Bitmain,
Cambrian…)
Efficiency
Source: Microsoft, Deloitte analysis
There are two major ways to address GPUs used to process graphic and flexibility, especially when an
the parallelism issue. One is to add intensive tasks such as games are AI algorithm has not been finalized.
a dedicated accelerator based on built with parallelism in mind. GPUs This allows vendors to optimize
existing computational architecture. have very high performance suitable custom chips for their applications
The other is to re-develop completely for deep learning AI algorithms that while avoiding the cost and potential
to create a new architecture that require a lot of parallelism. This new technology obsolescence of the ASIC
simulates the neural networks of role makes GPUs a great choice for approach.
human brains. The latter approach is AI hardware. GPUs are now widely
still in the early phase of development used in cloud and data centers for ASIC AI chips, on the other hand,
and unsuitable for commercial rollout. AI training. They are also used in the have dedicated architecture for AI
The addition of AI accelerators will automotive and security sectors. The applications. ASIC-based AI chips have
therefore be the primary method. GPU is currently the most widely used, many variations, including TPU, NPU,
Numerous types of AI chips are most flexible AI chip available. VPU and BPU, etc. These are all aimed
available for acceleration: mainstream at diverse, computer-intensive, rules-
ones including GPUs, field- FPGAs, meanwhile, are programmable based workloads with high efficiency
programmable gate arrays (FPGA) and arrays suitable for clients that and performance and the flexibility
application specific integrated circuits want to reprogram based on their of a CPU. Typically, ASIC AI chips have
(ASIC), with variations including TPU, own requirements. FPGAs are higher efficiency, a smaller die size, as
NPU, VPU and BPU, etc. Each has its characterized by a faster development well as lower power consumption than
own strengths and weakness. cycle (versus ASIC) and low power GPUs and FPGAs. But, ASIC chips'
requirements (compared to GPUs). development cycle is longer and less
But, their flexibility makes their cost flexible, which has contributed to its
relatively high. FPGAs can be seen as a slow commercial adoption.
good compromise between efficiency
31Semiconductors – the Next Wave | Race is on for AI chips
There are two distinct AI deployments The training phase requires a phase is typically done via hardware
in deep learning: training and tremendous amount of computational in the cloud. The inference phase, on
inference. AI utilizes big data as a power because it requires the the other hand, can be handled either
foundation to "train" neural network application of a huge data set to a in the cloud or on devices (products)
models, using training datasets to neural network model. This requires at the edge. Compared to training
obtain these newly trained models. high-end servers that have advanced chips, inference chips require more
A newly trained model is then armed paralleled performance to be able thoughtful consideration of power
with new capability to "infer" from new to process large, diverse and highly usage, latency and cost.
data sets to reach a conclusion. parallel datasets. Therefore, this
Figure: The two-phases of deep learning
DEEP LEARNING
TRAINING INFERENCE
Learning a new capability from existing data Applying this capability to new data
TRAINING NEW App or Service
Untrained Neural Deep Learning DATASET Trained Model DATA
Network Model New Capability Featuring Capability
Framework
“Cat”
“？”
Trained Model
Optimized for
Performance
“dog” “Cat”
“Cat”
Source: nVidia
Innovation in AI chips has just AI chips to enjoy explosive growth
begun, with vendors taking different The AI chip market is expected to
approaches to chip acceleration. account for over 12% of the total
Google, for example, has taken the AI market by 2022, with a CAGR of
ASIC path, whereas Microsoft has 54%. The Americas is expected to
demonstrated that comparable, lead the market, followed by EMEA
and sometimes even better results and then APAC. The Americas overall
can be achieved using an FPGA. will dominate the market throughout
Meanwhile, Xilinx, Baidu and Amazon 2022.
are all working to lower the traditional
barriers to FPGA adoption.
32Semiconductors – the Next Wave | Race is on for AI chips
Figure: The global AI and AI chip market (2022)
120
120 100% 16 120%
14.616
97.1 14
100 100%
80%
12 10.998
80 74.5 80%
60% 10
7.445
60 51.9 8 60%
40% 6
40 4.798 40%
29.3
4
20% 2.388
20 20%
2
0 0% 0 0%
2016 2017 2018 2019E2 2020E 2016 2017 2018 2019E2 2020E
Global AI market size (billion dollars) YOY Global AI chip market size (billion dollars) YOY
Source: CDIC
Cloud-based AI chips the most promising segment
The AI chip market can be split into two categories based on deployment
methods: cloud-based and network edge.
Deployment Application Market Potential (2022) CAGR (2018-2022)
Foundry 1
Training ~17billion ~55%
Cloud-based
Infer ~7 billion ~85%
AI Chip
2 Security ~2 billion ~40%
Network
edge Automotive ~5 billion ~43%
IP Smart Phones ~4 billion ~60%
Source: CICC, Deloitte analysis
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