Small Electronic Companies & Startups to Play a Key Role in Semiconductor Vendors' Growth - Gartner

Bengaluru: A large enterprise may bring huge amount of revenue to the semiconductor manufacturers, but this amount however seems to be less when compared to the revenue that multiple small enterprises yield. In order to achieve a stable and fast growth, the semiconductor companies need to focus mainly on large number of small enterprises, rather than being hell-bent on big deals from large enterprises. This seems to be true when we take a look at the results of Gartner’s new survey. According to the survey, startups and small electronic companies spent $78.3 billion on semiconductors last year; representing 23 percent of the overall semiconductor market.

The survey revealed that out of the 165,000 companies that buy semiconductor chips around the world, the top 10 companies yield nearly 40 percent and the top 11-100 companies yielded 30 percent of the overall semiconductor revenue. Despite the top 10 companies yielding such huge revenues, few of the large customers have decreased their orders in the past five years. Even though Samsung and Apple have increased their orders due to their success in the smartphone market, the semiconductor vendors feel insecure to rely on large companies such as these as they are in constant state of flux.

Masatsune Yamaji, Principal Research Analyst at Gartner, says, “The industry has seen some fairly significant disruption in recent years, which has highlighted the risks associated with semiconductor vendors putting all of their focus on a limited number of large customers, when small companies offer highly profitable and stable growth. To overcome the risk, some semiconductor vendors have tried to increase their business with small customers, while others are also realizing that they should adjust their strategies to do this”.
According to the survey, China is the fastest growing semiconductor markets with Chinese companies spending $14.9 billion in 2014. This may be attributed to the growth of Chinese smartphones and tablet markets. In the U.S., EMEA and Japan, the revenue from each company is small, but the total revenue combining all these small companies is massive.

Gartner recommends the semiconductor vendors to take advantage of the growing small-company market by carefully evaluating the amount of revenue that these small companies might yield, compared to the large enterprises. The importance of these small companies may differ for each vendor as the product type and target region of each vendor is different. Thus the vendors must have their own unique goals in the small-company market.

“Before jumping in, semiconductor vendors also need to be aware of the risks associated with the small-company market, which is prone to shrinking when the macro economy weakens. Revenue can also shrink even faster than large customers in many cases, so it is important to be aware of risk levels regarding any revenue decline. Vendors can reduce the risks by diversifying their customer base, which can spread the liability to allow for lost orders,” add Yamaji.

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