Semiconductor
product strategy
B2B project
Group 8, Section D
Chirag Agarwal 190201029
Pranav Aswal 190201070
Shivam Garg 190201096
Shobhit Malpani 190201098
Table of Contents
Market Analysis of Semiconductors .......................................................................................................... 2
Semiconductor Market Growth Drivers: .................................................................................................. 2
Challenges in the Semiconductor Market: ................................................................................................ 2
Semiconductor Market Key Players Perspective: ..................................................................................... 3
Intel's Competitor Analysis ........................................................................................................................ 3
Intel’s Strategy .......................................................................................................................................... 4
Key Customers and Customer Characteristic .......................................................................................... 5
Product design as defining the 3p’s: .......................................................................................................... 6
1. Price .................................................................................................................................................. 6
2. Place ................................................................................................................................................. 6
3. Promotion ......................................................................................................................................... 6
Defining Customers .................................................................................................................................... 7
Value Proposition ........................................................................................................................................ 8
References .................................................................................................................................................... 9
1
Market Analysis of Semiconductors
Semiconductors like germanium and silicon germanium are the materials that have properties of
electricity conduction that falls between insulators and conductors, and they are largely used in
making transistors. Semiconductors major use has been identified to be in electronic sector
(computers, chipsets, mobile phones, etc.) which will observe a CAGR of around 10% through to
2025 as projected by the market analyst. They also find applications in multiple sectors including
consumer electronics in telecommunication and other devices, automotive, energy, computing,
and others.
Semiconductor Market Growth Drivers:
1. The Rise of Implantable Medical Devices in the Healthcare Sector –
In a home generated report by the American Association of Retired Persons (AARP), total
market revenue of implantable medical devices was $74 billion in 2018. One of the major
outcomes from this conference was that the number of medical devices across the globe will
increase in the future. This states the fact that medical devices are becoming extremely important
for the healthcare delivery in all countries around the world. Now, medical devices are built with
semiconductor chips, which are the major driving factors responsible for the semiconductor
market's growth.
2. The Artificial Intelligence Rocketed Sales of Semiconductors –
With the emergence of machine learning and artificial intelligence, AI chips are becoming a
crucial necessity. AI has already created a need for powerful semiconductor chips that can
compute answers for extremely large data sets. Apparently, there will be a rise in the number of
machine learning applications that bring a subsequent rise in the market size of semiconductors
in the coming future.
3. Data Storage Firms drives the need for Semiconductors –
As per the research conducted by the market analyst of Industry ARC, the data storage market
was valued at $35 billion - $40 billion in 2018, and expected to expand at CAGR of 18% to 22%
during the forecast period of 2019 to 2025. Subsequently, this increase in demand for
semiconductors which will increase vendor revenues.
Challenges in the Semiconductor Market:
Even though there is a noticeable reduction in the cost of manufacturing and a sudden rise in the
demand for semiconductors, the technical discussions about the constantly changing demands for
the type of semiconductor chips and customized requirements from different set of customers is
becoming a problem in the semiconductor chips/processors market. Still, upgrading techniques
and investment in R&D has proved helpful.
2
Semiconductor Market Key Players Perspective:
Global Semiconductor Alliance (GSA) had named INTEL and NVIDIA Corporations as one of
the most respected semiconductor company which had achieved more than $5 billion sales
target. Other key players competing for share in semiconductor market are Qualcomm,
Samsung, SK Hynix, Broadcom, Micron, TI, Toshiba, NXP, Western Digital,
STMicroelectronics, MediaTek, Infineon, Renesas, Apple, Sony and Analog Devices.
Intel's Competitor Analysis
Intel is the company credited with the x86 microprocessors' invention, present in almost all the
PCs currently. The company sells these processors to most of the computer producers, including
technology giants such as Dell, HP, and Apple. Intel is also the manufacturer of motherboard
chipsets, graphics chips, embedded processors, and flash memory, among many other products,
along with microprocessors' production. Intel's status as a market leader is further enhanced by
the numbers it posts, as, in 2016, its revenue was more than $59 billion while it had assets
totaling over $113 billion. However, Intel operates in an industry which is characterized by stiff
competition. The following are the Intel competitors that compete for a market share:
1. Samsung
Intel's dominance in PCs and laptop is decreasing. Fewer and fewer people are purchasing
laptops and preferring smartphones over them. Much fewer people are buying PC's and most of
these are gaming PC's where Nvidia and AMD are cutting into the market. However, the
significant adoption across the world is of Smartphones, where Samsung is the clear leader in
chip making. In fact, in 2018, Samsung overtook Intel as the largest chipmaker in the world.
Samsung not only makes chips for its brand but also Apple MacBook and many other brands in
the market. Thus, Samsung is regarded as Intel's topmost competitor, and Intel is taking a good
look at Samsung's every move.
2. AMD
AMD is renowned worldwide for producing products such as motherboard chipsets, servers,
microprocessors, embedded processors, among many other products. Advanced Micro Devices
(AMD) headquarters are located in Sunnyvale, California, in the United States of America. AMD
is Intel's most significant competitor when it comes to the manufacture of the x86
microprocessors. AMD is the topmost manufacturer and supplier of x86 microprocessors, beaten
to Intel's first position. AMD's dominance in the GPU (Graphics Processing Unit) market was
made possible by its acquisition of ATI Technologies.
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3. NVIDIA
Nvidia produces some of the best GPUs, SoCs (System on a Chip and cryptocurrency in the
technology industry. Headquartered in Santa Clara, United States, Nvidia was founded in 1993.
It has slowly carved out a name for itself, especially in the gaming industry, with its shield tablet,
shield android TV and shield portable. Nvidia's accrued revenue of $6.91 billion and assets
worth $9.84 billion show that the tech company has come a very long way since its formation to
set high standards it has today. As of 2014, Nvidia shifted its focus to concentrate on four key
areas: data centers, gaming, professional visualization and auto, with its latest focus coming in
the form of artificial intelligence.
4. Qualcomm
Another company which is growing rapidly in the Smartphone industry and hence regarded as
one of the foremost Intel Competitors. Qualcomm is a telecom and semiconductor manufacturer
based out in the US. The company excoriates most of its revenue from manufacturing of chips,
while most of its profit results from patent licensing. In 2015, Qualcomm refused to entertain
splitting calls into two and instead chose to keep its patent licensing and chip-making business
intact. Qualcomm is a fierce competitor in the tech industry as it gathered a revenue of $23.55
billion and a net income of $5.70 billion.
5. IBM
IBM, over the years, has been known for the high quality of its products and services. Founded
in 1911, International Business Machine Corporation (IBM) has its headquarters in Armonk,
New York. IBM is topmost market leader, and this is evident by its presence in many countries,
175 countries, through its many numbers of offices they have in these countries. IBM specializes
in the production of processors, computer software, hardware, and also offering consulting
services. Some of IBM's processors are Power 7, Power 8, Power 9, Power 10, Power PC, and
IBM Z. IBM is behind most of the modern inventions that have revolutionized the tech industry;
some of these inventions include; floppy disks, ATMs, hard disks, the PC, and magnetic stripe
cards, to mention a few. IBM's revenue as of 2019 was 77.1 billion dollars, while its assets were
worth 117.47 billion dollars, further highlighting its status as a significant player in the industry.
Intel’s Strategy
Intel Corporation has adopted premium pricing strategy of its semiconductors to maximize its
profits. Accordingly, the company's prices are relatively higher than those of its competitors,
such as NVIDIA. The advantage of this pricing strategy to Intel is that it maximizes the profit
margin of the company. The main disadvantage is that it is challenging to implement in a price-
sensitive market. But Intel succeeds in using this pricing strategy by maintaining a premium
brand with a corresponding high perceived value based on target consumers' perceptions. For
e.g., the company advertises its brand and products as being a leader in the semiconductor
industry. In doing so the consumers maintain the perception that Intel products are better than
those of its competition. This perception enables the company to sell its products at higher prices
and expect growing revenues despite competitors' cheaper products. On the other hand, it also
has a market-oriented pricing strategy which involves determining market conditions and the
4
costs of the competitors. Intel adopts this pricing strategy to guide the adjustment of premium
prices. Although, the company continues to use the premium pricing strategy as the primary
strategy for setting prices.
Key Customers and Customer Characteristic
The three largest customers collectively accounted for approximately 41% of Intel's net revenue
in 2019 and 39% of net revenue in 2018. Intel expects a small number of customers will continue
to account for a significant portion of their revenue in the foreseeable future. Industry trends,
such as the increasing shift of data center workloads to the public cloud, have increased specific
customers' significance, particularly cloud service providers, to some of Intel's data-centric
businesses. The cloud and cloud applications represent a new and increasingly demanding
computing environment. The further consolidation of computing workloads in the cloud, and
consolidation among cloud service providers, can heighten the competitive importance of
factors such as collaboration and customization with cloud service provider customers to
optimize products for their environments; product performance; energy efficiency; feature
differentiation; product quality, reliability, and factors affecting server uptime; and product
security and security features. Our competitive position and market segment share may be
adversely affected to the extent we do not execute effectively across these factors. Some cloud
service provider customers have also internally developed and may continue developing their
semiconductors, including designs customized for their specific computing workloads. The shift
of data center workloads to the cloud has also adversely affected. It may continue to affect sales
to enterprise and government market segment customers when end users have elected to migrate
workloads. To the extent we differentiate our products through customization to meet customer
specifications, order changes, delays, or cancellations may result in non-recoverable costs.
In 2019, Intel's three largest customers accounted for 41% of our net revenue (39% in 2018, 40%
in 2017):
1. Dell Inc. accounting for 17% (16% in 2018, 16% in 2017)
2. Lenovo Group Limited accounting for 13% (12% in 2018, 13% in 2017)
3. HP Inc. accounting for 11% (11% in 2018, 11% in 2017).
These three customers accounted for 39% of accounts receivable as of December 28, 2019 (45%
as of December 29, 2018). Substantially all of the revenue from these customers was from the
sale of platforms and other components by the CCG and DCG operating segments. These 3
companies have always been a big customer of Intel. But with PCs and Laptops on a steady
decline it could severely impact these firms which could pose a serious threat to Intel.
Diversifying is the only option left with Intel at this point-in time.
5
Product design as defining the 3p’s:
1. Price
We will adopt a variable pricing strategy as the prices and margins will vary across its product
range and market segment. For example- in Intel’s case, the price of Intel Atom processor and
Intel Xeon processors are different as they cater to different customer segments. The main target
segment is the enterprises but indirectly it even pulls the end customers. Moreover, in price
sensitive market, this strategy will be useful for Intel to capture the market share and attract new
customers. Moreover, for new products price penetration strategy can be pursued where in
comparison with its competitors its prices are relatively less. This will ensure faster product
adoption as well as higher market share for our product.
2. Place
Intel, as we saw, basically sells through two channels- Intel Shops and authorised sellers. We
will also adopt a similar strategy for our product but along with this distribution channel, we will
also use online channels along with social media post. Its official website and social media
pages should also be integrated so that it provides users with easy navigation. More emphasis
should be given on its online presence along with maintaining a close relationship with large
retailers through personal selling. This will enable the company to increase its sales. As it
already has an extensive and robust distribution system, it will ensure easy availability of our
products. Moreover, by following omni channel distribution system will enable the customers
easy access of products both through online and offline medium.
3. Promotion
We will build our campaigns around initiatives like Artificial Intelligence technology and
technology expertise solutions. Moreover, like we will have our company tagline- “We know
the future because we’re building it” which will show clearly how we are trying to position
ourselves. They can also use campaigns where the user can their experience and highlight how
using our product has improved the efficiency of the functioning both at an individual level as
well as organisational level. Moreover, with increase in internet penetration, more focus should
be on various digital marketing technique to improve its online presence. This can include search
engine optimization, banner advertisements, blogs and even engage popular bloggers to promote
the product by posting on their social media handles. To increase customer engagement and
awareness, they can incorporate latest social media trends like memes, hashtags. Moreover,
constant feedback should also be collected from the customers as it will highlight that company
is interested in building long term relationship with them and it can ensure repeat purchases.
6
Defining Customers
The world is on a rapid technological innovation; the semiconductor industry looks forward to
growth. After a relatively weak 2019, the anticipation is that the semiconductor market will
quickly recover in 2020 and continue to prosper from thereon. The semiconductor sales totaled
$481bn in 2018.
The demand for chips is due to the rapidly growing use of AI will significantly contribute to its
overall growth. The memory chips are expected to maintain the largest market share in the
semiconductor industry through 2022. Every application market is expected to grow through
2022. The automotive and data processing markets are expected to lead the growth. These
segments will likely be bolstered by the demand for chips related to AI.
A disruptive new technology typically fuels demand in the semiconductor industry. Between
1997 and 2007, the rapid increase in PC's popularity boosted demand for central processing units
(CPU) and memory chips. The broad penetration of the Internet drove growth for Ethernet
equipment, network processors, and ASICs. The smartphone era began with the launch of the
iPhone in 2007, which prompted the demand for mobile processors, while on the other hand, the
adoption of cloud computing has pushed growth for storage and server CPUs.
Now, artificial intelligence will be the likely driver of another decade-long growth cycle for the
semiconductor sector. It is expected that the market for AI-related semiconductors is to grow
from a current $6bn revenue to more than US$30bn by 2022, a CAGR (compound annual growth
rate) of almost 50%. Although the AI driven use cases are expected to be applied across every
industry segment over time, their adoption in these industries will likely be determined by the
pace of the development and size of investment in the technology.
The global Semiconductor market has been segmented based on the end user, which is as
follows:
1. Data processing
2. Communications
3. Consumer electronics
4. Industrial devices
5. Automotive
6. Military & civil aerospace
7. Other end users
7
On the basis of geography, the global Semiconductor market can be segmented in five major
geographies, which are as follows:
1. Asia Pacific
2. Europe
3. United States
4. Middle East
5. Rest of world
Value Proposition
The value proposition for our product will be as follows:
1. Accessibility
The company’s product is designed to operate on a wide variety of operating systems.
This is made possible through its cooperation with customers and other third parties. As a
result, its chips are suitable for a broad selection of end-users and can also be custom-
built for the user.
2. Performance
The offering will demonstrate superior performance than any of its competitors in the
market. By our analysis we found that in the semiconductor industry all the major players
have strategized to offer premium pricing for the offerings. Out products will give the
value of superior quality at a much more reasonable pricing.
3. Innovation
The company will be faster than its competitors when it comes to adopting next-
generation process technology and taking products using that technology to market. Thus,
the offering the most important value proposition to its customers. The innovative
products will also help its customers stay ahead in the market.
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References
https://www.industryarc.com/Report/18466/semiconductor-market-research-report-analysis.html
https://d1io3yog0oux5.cloudfront.net/_5b8da15685da45791d42ef801b5bc906/intel/db/955/8138/
file/2019-Annual-Report20200714-27210-18yndur.pdf
https://www.marketwatch.com/story/in-this-case-losing-apple-as-a-customer-would-be-good-
news-2020-06-15
https://www.pwc.com/gx/en/industries/tmt/publications/global-tmt-semiconductor-report-
2019.html
https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/technology-media-
telecommunications/deloitte-cn-tmt-semiconductors-the-next-wave-en-190422.pdf
