Rising Tide: Exploring Pathways to Growth in the Mobile Semiconductor Industry

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Rising tide Exploring pathways to growth in the mobile semiconductor industry

A Deloitte Research Open Mobile report Rising tide: Exploring pathways to growth in the mobile semiconductor industry

About the author

Scott Wilson, PhD Scott Wilson leads research and thought leadership development for Deloitte’s US technology, media, and telecommunications (TMT) practice. As a member of Deloitte Research, his work explores TMT industry trends and company analysis, technology management, innovation, and corporate growth strategy across the global TMT sectors. Dr. Wilson has over 15 years of experience in the TMT sector and has held a variety of industry and academic leadership roles. An expert on the subject of technology innovation strategy, he has spoken at a number of technology, business, and policy forums. He is the author of numerous articles in leading business and academic publications including Harvard Business Review, Forbes, and Deloitte Review. His research has also been cited in high-profile publications such as theWall Street Journal, the New York Times, and Dow Jones. A native of the United Kingdom, Dr. Wilson holds master’s and PhD degrees from Cambridge University’s Engineering Department at the Center for Technology Management. He is currently based in Deloitte’s San Francisco office.

About the research team

Praveen Tanguturi, PhD Praveen Tanguturi, of Deloitte Services LP, leads telecom research in Deloitte’s US technology, media, and telecommunications (TMT) practice in India. As a member of Deloitte Research, his work explores industry trends and company strategies across the global TMT sectors. Dr. Tanguturi has authored five journal articles, eight conference papers, two technical reports, and one book chapter. He is a specialist on the subject of real options investment strategy in telecommunications and has been published in a variety of academic journals including the Journal of Telecommunications Policy, Journal of Technology in Society, and the International Journal of Mobile Communications. Dr. Tanguturi holds a PhD in technology management from the Stevens Institute of Technology, New Jersey; a master’s in telecommunications from the University of Pittsburgh, Pennsylvania; and a bachelor’s in electronics and telecommunications from the University of Mumbai, India. He is the recipient of the Wesley J. Howe School of Technology Management’s out- standing PhD dissertation award for 2007–2008.

Karthik Ramachandran Karthik Ramachandran, of Deloitte Services LP, is a manager on Deloitte’s Market Insights TMT team. He is based in Hyderabad, India. A management professional who joined Deloitte in 2006, Ramachandran has close to nine years of research experience tracking global technology sectors, including the enterprise software and services, computing and communications equipment, and semiconductor sectors. He has undertaken in-depth industry research in areas such as business intelligence and analytics, financial analysis, evaluation of strategy and competitiveness in high-tech businesses, cloud computing, and solar PV. A Deloitte Research Open Mobile report

Acknowledgements

The author would like to thank the following people for their support and contribution to this research:

Craig Wigginton, national sector leader, Telecom, Deloitte LLP Phil Asmundson, partner, Deloitte & Touche, LLP Jonathan Copulsky, managing principal, Brand and Eminence, Deloitte LLP Eric Openshaw, vice chairman and US TMT leader, Deloitte LLP Scott Angel, partner, Deloitte & Touche, LLP Randy Whitney, partner, Deloitte & Touche, LLP Lilly Chung, principal, Deloitte Consulting LLP Paul Silverglate, partner, Deloitte & Touche, LLP Craig Grevelding, director, Deloitte Consulting LLP John Ciacchella, principal, Deloitte Consulting LLP Dave Couture, principal, Deloitte Consulting LLP Jon Warshawsky, director, Deloitte Services, LP Junko Kaji, Deloitte Services, LP Ryan Alvanos, Deloitte Services, LP Rithu Mariam Thomas, Deloitte Services, LP Matt Lennert, Deloitte Services, LP Joanie Pearson, Deloitte Services, LP Negina Rood, Deloitte Services LP Rohit Chavan, Deloitte Consulting LLP Aleem Khan, Deloitte Support Services India Pvt. Ltd. Prathima Shetty, Deloitte Support Services India Pvt. Ltd. Deepak Vasantlal Shah, Deloitte Support Services India Pvt. Ltd. Prasad Bhaskar Yadav, Deloitte Support Services India Pvt. Ltd. Aditya Muppa, Deloitte Support Services India Pvt. Ltd. Pandarinath Illinda, Deloitte Support Service India Pvt. Ltd. Sholina Mukerji, Deloitte AERS India Pvt. Ltd. Prasad Kantamneni, Deloitte Support Services India Pvt. Ltd. Sushant Gaonkar, Deloitte Support Services India Pvt. Ltd.

iii Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Foreword: Why read this report?

Last year, Deloitte TMT released its Open Mobile 2012 study, which showcased selected findings from a highly targeted survey of senior executives in and around the mobile ecosystem. Our research highlights a broad range of opinions on the opportunities and challenges associated with sustaining top-line growth across and beyond the industry in the immediate three- to five-year time frame. In particular, the study explored the impact that the accelerated development of mobile web technology, changing consumer behavior, and a shifting regulatory policy landscape are having on the issues of competitiveness, growth, and innovation.

With the release of this latest report, also part of our ongoing Open Mobile series, we present a new study—this time focused on the mobile semiconductor industry. With semiconductor companies increasingly having a major impact on all facets of the mobile ecosystem, Deloitte Research explores the leading-edge growth strategies and capabilities that semiconductor firms are using to sustain market leadership and capitalize on new mobile opportunities.

Semiconductor and mobile technology executives will find this report useful in two ways. To begin with, we present a comprehensive overview of the mobile semiconductor ecosystem. Specifically, we highlight, discuss, and synthesize projected growth trends and end-market data to present a new analysis of the mobile semiconductor competitive landscape. Having identified the emerging growth opportunities, we then switch focus to the enterprise level and explore the challenges companies face when executing mobile business model innovation to act on these opportunities. Case studies are presented analyzing several leading semiconductor companies’ approaches to using open innovation and platform leadership strategies in emerging mobile growth markets. Insights and findings from the case studies are then used to inform executive guidance, the core of which is a diagnostic model to assess the development and maturity of mobile platform innovation capabilities.

iv A Deloitte Research Open Mobile report

Contents

Executive summary | 1 The rising tide that lifts all boats | 3 The blistering growth in mobile data traffic 3 The 4G era takes hold 4 It’s a wonderful (connected) life 7

Smartphones and tablets drive silicon growth platforms | 10 While basic phones taper off, smartphone demand remains somewhat buoyant 10 The tablet takeover 13 Au revoir, PCs? 13

A profile of the mobile semiconductor industry | 16 Overview and revenue league tables 16 A fragmented competitive landscape 18 Breaking down the mobile end markets 19 Growth trends in the end markets 25 Growth trends in vertical industries 28

Keys to unlocking growth: Democratize or die! | 33 Open innovation—a decade old and still evolving 33 Platform leadership—at the core of mobile business model innovation 35 Understanding the elements of platform leadership 36

Separating the leaders from the laggards: Selected case studies | 38 Summary of the case study analysis 56

Toward a new taxonomy for open innovation and platform leadership | 60 Managerial implications 62

Executive guidance | 63 Developing a capability maturity model for mobile business model innovation 63 Measuring the effectiveness of open innovation and platform leadership capability development 64

Endnotes | 66

v Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Executive summary

HE growth of wireless data traffic contin- risk being marginalized by a growing army Tues at a blistering pace. With it, mobile of new entrants from nontraditional mobile technology adoption has become widespread industries. Together with an exploration of across large sections of society, touching on all the transformation of the strategy process in aspects of daily life. Consumer and enterprise mobile technology-oriented companies today, mobile markets are in constant turbulence, our research highlights the challenges ahead and the uptick in demand across the smart- for all firms looking to remain competitive in phone, tablet, and mobile PC mass markets is the face of global hypercompetition. expected to continue aggressively in the short Within this context, this report highlights to medium term. an increasingly significant segment of the At the root of this shift is an ongoing wave emerging mobile ecosystem—the semiconduc- of disruption centered on mobile web technol- tor industry. There are two objectives: Provide ogy and software innovation. As the consumer an analysis of the most salient growth opportu- mobile web experience progressively mim- nities within one of the fastest-growing market ics the consumer desktop PC experience, segments in the mobile industry, and explore competition across the mobile value chain is the tactics being used by leading semiconduc- at an all-time high, with incumbents facing tor companies to capture and create value. unprecedented pressure from software-driven Drawing on this analysis, we then provide entrants. Against this backdrop, insights from guidance that all companies competing across a recent Deloitte Open Mobile survey highlight the mobile industry can use to sustain growth a pressing need for incumbent companies to in periods of high market turbulence. secure viable pathways to growth—or else,

ABOUT THE DELOITTE RESEARCH OPEN MOBILE SERIES Since 2009, the Deloitte Research Technology, Media, and Telecommunications (TMT) team has explored the advent of the open mobile era and the subsequent shifting competitive landscape in the United States and global mobile markets. The team has produced a number of research reports on a wide range of strategic issues that mobile technology companies face in this increasingly turbulent industry. For more details on our current research and free downloads of all our reports, please visit http://dupress.com/industries/technology- media/.

1 A Deloitte Research Open Mobile report

From an industry perspective, our research level, taking an in-depth look at the strategic suggests that a number of key demand driv- capabilities required to stimulate innovation ers across the mobile sector are converging. and enhance the potential for capturing value. All represent strong growth opportunities Selected case studies highlight semiconductor for semiconductor firms that are willing to firms that are developing leading-edge innova- capitalize on these opportunities by enacting tion and platform leadership capabilities as agile platform-growth strategies. A detailed pathways to growth in emerging markets. analysis of four primary drivers—wireless From this analysis, executive guidance is traffic growth, mobile device and services then offered on maintaining competitiveness growth, connectivity, and mobile software amid heightened market competition and tech- trends—suggests that select firms are well nological disruption. Tactics used to transition placed to make substantial inroads into the from traditional, closed business models to a major mobile consumer and enterprise value more open, collaborative approach are consid- chains. Additionally, an examination of the ered essential for competing in the mobile 4G leading semiconductor product end markets era. A framework to guide capability develop- reveals the effect the 4G era may have on the ment, using the twin strategies of open innova- competitive landscape as companies jostle to tion and platform leadership, is drawn from gain leadership in emerging mobile markets. the lessons learned from the most innovative To accompany this industry breakdown, we semiconductor companies in mobile today. then switch gears and focus at the enterprise

Consumer and enterprise mobile markets are in constant turbulence, and the uptick in demand across the smartphone, tablet, and mobile PC markets is expected to continue aggressively in the short term. But what comes next?

2 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

The rising tide that lifts all boats

HE once traditionally predictable wireless attention is broadly on the latter, but within the Tsector now finds itself constantly dis- context of perhaps the driving force of mobile rupted in a period of sustained hypercompeti- growth today: the semiconductor industry. tion.1 Deloitte’s Open Mobile series continues Often at the center of mobile technology to explore this phenomenon in some depth, innovation but rarely grabbing the same head- focusing particularly on incumbent markets lines enjoyed by the likes of Apple and Google, under threat from new entrants as well as semiconductor companies continue to play emerging growth markets harnessing mobile an increasingly important role in defining the technology at their core. In this report, our rate and direction of mobile device and service innovation sweeping the Figure 1. Mobile traffic in exabytes (EB) per month, global, 2012–2017 sector. The impact of this shift is continuing to grow; Global mobile traffic (in EB per month) mobile technology adop- 12 11.2 tion is now widespread and on the rise in industries 10 and sectors that are recon- figuring their business 8 7.4 models around mobile % 6 platforms. As subsequent : 6 + 81% 6 ) 17 consumer and enterprise 2– 4.7 01 (2 demand increases for GR 4 CA these mobile products and 2.8 + 113% services, semiconductor 2 1.6 companies are set to reap 0.9 + 31% economic benefits from + 89% 0 their influential positions in emerging mobile eco- 2012 2013 2014 2015 2016 2017 systems in industries such n Nonsmartphones n M2M n Other portable devices as automotive, health care, n Laptops n Tablets n Smartphones energy, and commerce. Source: Cisco Systems, Cisco visual networking index: Global mobile date traffic forecast update, With mobile’s rising 2012-2017, 2013. tide continuing to lift com- Notes: 1 exabyte (EB) = 1,000 petabytes (PB) = 1 million terabytes (TB) = 1 billion gigabytes. “M2M” stands for machine-to-machine. panies competing in the

Graphic: Deloitte University Press | DUPress.com

3 A Deloitte Research Open Mobile report

sector, this report initially explores Figure 2. Number of wireless-enabled subscriber connections (millions), the driving factors for semiconduc- United States, 2011–2012 tor mobile growth before identifying leading practices for growth and 95.8 innovation from the industry’s lead- 2011 ing players. We highlight companies 15.2 that are proactively developing + 36.5% new markets in sectors undergoing 130.8 2012 rapid transition, where incumbents 21.6 + 42.1% are continually being challenged to respond with innovative new n Smartphones and PDAs n Tablets, laptops, and modems business models. Sources: CTIA, Consumer data trafﬁc increased 104 percent according to CTIA— The wireless association semi-annual survey, October 11, 2012, The blistering growth http://www.ctia.org/media/press/body.cfm/prid/2216; Deloitte analysis. in mobile data traffic Graphic: Deloitte University Press | DUPress.com

In 2013, Cisco’s annual Visual Figure 3. Wireless network data traffic (in petabytes), Networking Index predicted mobile United States, 2011–2012 and Internet data traffic to increase 13-fold from 2012 levels over a five- 2011 568 year period (see figure 1). Even more significant, the index forecasts total mobile traffic to increase at a com- pound annual growth rate (CAGR) 2012 1,160 + 104.2% of 66 percent across combined con- 2 sumer and enterprise markets. This 0 200 400 600 800 1000 1200 effect can be observed at the country level. For example, according to Sources: CTIA, Consumer data traffic increased 104 percent according to CTIA— The wireless association semi-annual survey, October 11, 2012, industry wireless association CTIA, http://www.ctia.org/media/press/body.cfm/prid/2216; Deloitte analysis. wireless traffic has doubled in the Note for figures 2 and 3: Data based on surveys conducted by CTIA. 2011 data is United States, growing 104 percent based on July 2010–July 2011 survey results; 2012 data is based on July 2011–June 2012 survey results. year over year between 2011 and 2012 (see figures 2 and 3) with an Graphic: Deloitte University Press | DUPress.com expansion in the mobile subscriber base. Emerging regional markets are in mobile technology and wireless connectiv- also developing rapidly, with Eastern Europe, ity has rapidly touched upon all facets of life the Middle East, Africa, Asia Pacific, and Latin and “reimagined” everything from personal America all believed to eventually outgrow computing, printed media, news, and informa- the developed world in terms of mobile tion to music, video, home entertainment, and traffic growth. art to eating, drinking, health care, banking, Across the technology, media, and tele- and commerce.3 The list is seemingly end- com sectors, the magnitude of these forecasts less. Mobile technology has undoubtedly should not be underestimated. The pace of changed how we live, work, socialize, and growth in mobile data traffic is staggering, collaborate. And yet, in many ways, we’ve and society has embraced mobile wireless barely scratched the surface. With the advent technology in ways that were unthinkable a of ubiquitous wireless access in cities across the mere five years ago. As Silicon Valley venture developed and developing world set to spur capitalist Mary Meeker points out, innovation waves of democratized digital populations, the

4 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

possibility that mobile technology will tran- Recently, wireless service providers in scend previous technological shifts in societal the United States have continued investing impact is very real indeed. substantially to enhance existing mobile net- Digging beneath the macro-level data, work infrastructure. Total capital investments the most salient questions today surround were approximately $25 billion during July the sources fueling the growth in data traffic. 2011–June 2012, including network upgrades Specifically, what are the particular events and from 3G to 4G. Leading the deployment in the paradigm shifts behind this surge? From a con- United States is Verizon, which successfully sumer and enterprise perspective, it seems that launched its LTE network in late 2010 and rap- a confluence of mobile meta-trends is acceler- idly expanded to approximately 491 markets ating the rapid adoption of mobile technology by April 2013.7 Meanwhile, not to be outdone, and devices across developed and emerging AT&T is currently pushing the expansion of its economies, businesses, and corporations and HSPA+ network while simultaneously expand- into the homes of consumers everywhere. ing the rollout of a new LTE network, which began in summer 2012 with a target of com- The 4G era takes hold plete coverage in the United States by the end of 2013.8 In economic terms, the emergence of the In global markets, Japan (13 percent) and 4G wireless era has profound consequences for South Korea (8 percent) are quickly catching firms competing across the technology, media, up in total LTE subscribership.9 Elsewhere, 4G and telecommunications sectors. Perhaps subscriber rates are set to grow consistently in more so than previous network standards, 4G 2013 and beyond,10 with advanced economies network technology in the form of the long- in Europe, Latin America, and Southeast Asia term evolution (LTE) standard will likely boost all primed to accelerate LTE rollout in the next mobile innovation and adoption and fuel the 12 months. Not far behind, China will likely growth of mobile data traffic to new heights.4 ramp up in 2013–14.11 Driven by this uptick, On paper, LTE will provide a jump in net- an estimated 1 million new connections are work speeds and bandwidth capability, usher- being added each day (see figure 4). ing in a new wave of mobile ubiquity. To date, And with demand rapidly outstripping the United States leads the way in 4G adoption, supply, governments worldwide are seeking commanding roughly 64 percent of worldwide to revise regulatory policy to free up more LTE subscribership (see figure 4). This is not spectrum for 4G licenses. All the while, mobile surprising. Many US wireless service provid- network traffic continues on an aggressive ers have announced support for the standard, upward march: It is predicted to grow seven- which is designed to be backward-compatible fold during 2013–2017,12 adding pressure to with GSM and HSPA technologies, giving it a the call for additional spectrum solutions in clear cost advantage over competing technolo- markets already facing a crunch.13 gies such as WiMax. LTE will also provide network operators 2–5 times greater spectral It’s a wonderful (connected) life efficiency than the most advanced 3G networks, reducing the transmission cost per bit Well beyond the immediate confines of the and allowing better economics for carriers and wireless sector, the impact that 4G will have end users. Analyst estimates continue to bear on non-traditional wireless industries such as this out, with recent market forecasts suggest- commerce, health care, energy, and automo- ing LTE services will generate more than $11 tive is expected to be even more pronounced. billion in service revenue in the United States Here, mobile device and software innova- by 20155 with global LTE subscribers likely to tion—focused on enhanced wireless con- exceed 1 billion by 2016.6 nectivity powered by machine-to-machine

5 A Deloitte Research Open Mobile report

Figure 4. 4G/LTE adoption by region, worldwide, 4Q12

• United States was No. 1 in worldwide • In the United Kingdom, mobile • The Asia Paciﬁc region (53% of the global 4G LTE subscribership as of 4Q11, operator Everything Everywhere plans total) will likely surpass North America in comprising 64% of global total.* to launch 4G services in16 cities- 4G LTE subscribership by the end of • In October, the FCC voted to allow including London, Edinburgh, Cardiff, 4Q12—driven mainly by Japan and South additional spectrum allocation to and Belfast—from late 2012 Korea.^^ mobile operators to boost 4G services.^ onwards.** • Japan (13%) and South Korea (8%) were • The move, which removes certain No. 2 and No. 3, respectively, in global 4G regulatory barriers, will help the United LTE subscribership as of 4Q11.* States sustain its global mobile broadband leadership.

• In April 2012, the telecom regulator, Anatel, began reviewing 4G spectrum allocation proposals in Brazil. • Telecom operators that secure 4G spectrum will likely launch 4G • Airtel launched India’s ﬁrst 4G TD-LTE • In China, 4G TD-LTE subscriber growth is services in mid-to-late 2013, ahead services in April 2012. progressing slowly, with only a few mobile of Confederations Cup 2013 and the • Huawei recently launched the country’s operators servicing active subscribers. 2014 Football World Cup.* ﬁrst LTE smartphone, which will run on • Starting 2013–14, larger mobile operators Airtel’s 4G network.~ with spectrum, such as China Mobile, are likely to begin offering LTE services fueling growth in LTE consumer adoption.#

Sources: Deloitte analysis and sources listed below. * TeleGeography, US remains at forefront of 4G LTE adoption, CommsUpdate, March 15, 2012; TeleGeography, Anatel will begin reviewing 4G tender proposals and reveal auction, CommsUpdate, April 25, 2012. ^ Kenneth Corbin, “FCC paves way for 4G LTE mobile broadband service,” CIO.com, October 17, 2012. ** “EE's 4G mobile network roll-out to start 30 October,” BBC News, October 3, 2012. ^^ Parks Associates, Asia & Pacific to overtake North America in 4G/LTE subscriptions as global adoption exceeds 50 million subscribers in 2012, July 24, 2012. ~ “Bharti Airtel launches India’s first 4G service,” Economic Times, October 4, 2012; “Chinese telecom firm Huawei launches LTE handset in India with Qualcomm and Bharti Airtel,” Economic Times, October 16, 2012. # ABI Research, LTE subscriber totals have surpassed WiMAX in 2Q12, September 26, 2012.

Graphic: Deloitte University Press | DUPress.com

6 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

(M2M) technologies—is driving business increased utilization of M2M technologies, model innovation. The outcome is a flood of which is also considered a major trend. With new mobile products and services in industries new device innovation set to proliferate in adopting mobile technology at their core. In these areas, semiconductor companies will be economic terms, the net effect of this tech- well placed to drive product innovation across nological shift is significantly positive across a variety of verticals and accelerate the adop- multiple facets of the mobile industry’s value tion of mobile technology in the process. chain, from both the supply and demand sides. Executives participating in Deloitte’s recent The rise of the machines Open Mobile survey concurred and nominated The cornerstone of many of the emerging the top three vertical industries where they mobile service opportunities, the rise in wire- thought 4G technology will have the biggest less connectivity and the subsequent growth impact on stimulating mobile business model in the Internet of Things (IOT) category, is innovation—increasing the potential for value providing significant momentum in connected generation outside of traditional mobile and device categories across consumer and enter- 14 wireless markets in the process. Of those prise sectors alike. In industries such as energy, polled, 78 percent believe the health care/life health care, retail, and consumer products, sciences sector holds the most potential, with devices integrated by M2M wireless technol- consumer products/retail industry and finan- ogy are enabling new gateways to connectivity cial services/commerce also considered prime and propelling mobile revenue growth (see sectors set to benefit most from the emergence figure 6). of 4G broadband technology (see figure 5). In As a result, worldwide M2M interconnected terms of value generation drivers across these devices are on a steady upward march that is sectors and beyond, a majority believes mobile expected to surge 10-fold to a global total of services—most prominently in areas such as 12.5 billion devices by 2020 (see figure 7).15 The mobile cloud computing and mobile pay- resulting forecast in M2M traffic shows a simi- ments—hold the biggest potential along with lar trajectory, with traffic predicted to grow

Figure 5. Vertical industries with greatest potential for new mobile growth Percentage of respondents selecting top three industries 100% Network carrier Infrastructure and component manufacturers 80% Mobile device manufacturer Software developer 60%

40%

20%

0.0 Health care/ Consumer Financial Automotive Energy Government Manufacturing life sciences products/ services/ retail commerce

Source: Deloitte Open Mobile analysis, 2012.

Graphic: Deloitte University Press | DUPress.com

7 A Deloitte Research Open Mobile report

Figure 6. The Internet of Things—proliferation of connected devices across industries

Servers and storage PCs and tablets HVAC, transport Fire and safety Smartphones Lighting, security, access Switches and routers PBXs Tanks, fighter jets Cars, jeeps, ambulances Turbines and windmills Commercial/institutional Public Homeland security, Industrial Enterprise UPS, batteries, generators, fire and fuel cells Environmental Public infrastructure Meters, drills Supply and demand monitoring Oil and gas IT and Emergency services Battlefield Buildings Alternative energy networks Surveillance communications Equipment Security/ Tracking Energy public safety Digital cameras, power systems, Infrastructure The Internet of POS terminals dishwashers Convenience Consumer Retail Specialty and home Things Tags Entertainment Hospitality E-readers and Cash registers Awareness Stores desktops Vending machines Washers/dryers Safety Health care Transportation and life Signs Lights, TVs sciences Industrial MP3s, gaming Care consoles In vivo/home Transport systems Alarms Research Non-vehicular Distribution Vehicles Resource automation MRIs, PDAs Converting/discrete Telemedicine Fluid/processes Vehicles, lights, ships Surgical equipment Planes, signage Monitors Tolls Implants Pumps, valves, conveyors, pipeliners Motors, fabrication Assembly/packaging, vessels/tanks

n Industries and sectors n Application groups n Devices

Source: Beecham Research, M2M/IoT sector map, 2013.

Graphic: Deloitte University Press | DUPress.com

24-fold from 2012–2017, representing a CAGR the form of smart grid and smart metering of 89 percent over the same period (see figure technologies—expected to experience signifi- 8).16 Revenue from M2M services spanning a cant growth in the M2M market. Indeed, the wide range of industry vertical applications, Obama administration’s targeted economic including telematics, health monitoring, smart stimulus package of $3.4 billion to modernize buildings and security, smart metering, retail the nation’s power grid will further accelerate point of sale, and retail banking, is set to reach the development of this particular market.18 $35 billion by 2016.17 The health care sector is also set to gain Driving this surge in the M2M market are from the increased adoption of mobile tech- a number of forces such as the declining cost nology, with the US wireless health monitor- of mobile device and infrastructure technol- ing device industry forecast to become a $22 ogy, increased deployment of IP, wireless and billion industry by 2015.19 The majority of the wireline networks, and a low-cost opportunity remaining M2M service opportunities are for network carriers to eke out new revenue currently clustered around the transportation, streams by utilizing existing infrastructure in automotive, logistics, and fleet management new markets. This opportunity will likely be sectors, where applications range from reduc- most prominent across a number of enter- ing traffic congestion by monitoring traffic prise verticals, with the energy industry—in flows to facilitating RFID tracking in supply

8 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

chain management. In all cases, M2M tech- in mobile growth strategies as networks and nology assists improvements in productivity, platforms shift to facilitate more open access. innovation, and compliance-related business For semiconductor companies looking to functions and is set to play an even greater role exploit these opportunities, the roadblocks are mainly at the sector level where fragmentation exists among the various ecosystems that have Figure 7. Number of M2M connected devices (billions)*, grown to support the rollout of M2M across global, 2011 and 2020 multiple industry subsectors. Several elements of the M2M value chain are at risk within these 2011 1.3 ecosystems. This includes companies and organizations active in the services (systems integration), software (middleware and application

2020 12.5 + 29% infrastructure vendors), hardware (manufacturers of GPS chips and RFID sensors), and telecom (network access, connectivity, infra- 0 3 6 9 12 15 structure vendors) sectors. Each of these areas Figure 8. M2M traffic in PB per month^, is subject to technological fragmentation, and global, 2012 and 2017 a particular lack of standardization is apparent Global M2M traffic (PB per month) in the many coalitions and standards bodies set up to develop targeted technology solutions. 2012 24 The presence of a general standard would help to achieve seamless national and international coverage, but idiosyncratic solutions for specific devices over specific networks are 2017 563 + 89% the main issues currently preventing this from happening. However, if companies can suc- 0 100 200 300 400 500 600 cessfully orchestrate a consolidated ecosystem strategy across the most disjointed elements Sources: *Matt Hatton, Assessing mobile network operator capabilities and opportunities in M2M, Machina Research, September 2012. of the current value chain, new pathways to ^ Cisco Systems, Cisco visual networking index: Global mobile data sustainable M2M business models will likely traffic forecast update, 2012–2017, February 6, 2013. emerge, opening doors for semiconductor Graphic: Deloitte University Press | DUPress.com companies to exert influence.

However, if companies can successfully orchestrate a consolidated ecosystem strategy across the most disjointed elements of the current value chain, new pathways to sustainable M2M business models will likely emerge, opening doors for semiconductor companies to exert influence.

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Smartphones and tablets drive silicon growth platforms

N the mobile device category, the most 2012–2017, reach- A comparison Isignificant growth driver for the semiconduc- ing 468 million units. tor sector is the increasing global demand for Revenue is expected with the smartphones and tablets. Again, the numbers to increase from $40.8 are a stark reminder of the rapid rise of con- billion in 2012 to traditionally nectivity and adoption of mobile technology $93.2 billion in 2017, a robust PC across all facets of consumer and enterprise CAGR of 18.0 percent markets. A comparison with the traditionally (see figure 9).22 semiconductor robust PC semiconductor market illustrates just how quickly smartphone and tablet adop- While basic market illustrates tion has risen over the last 18 months, with phones taper just how quickly an even greater uptick expected in the next 3–5 years. off, smartphone smartphone and On a global scale, PC shipments are demand tablet adoption expected to decline at a CAGR of 4.5 percent remains during 2012–2017, reaching 272 million units has risen over the shipped in 2017 (see figure 9). PC end revenue somewhat is anticipated to decrease at an 8.4 percent buoyant last 18 months, CAGR during the same period, reaching with an even $142.2 billion in 2017, reflecting declining At the macro level, consumer demand for this form factor. In con- worldwide handset greater uptick trast, smartphone sales are expected to grow at sales are expected to a CAGR of 14.2 percent during 2012–2017, to be somewhat sluggish expected in the 923 million units.20 Subsequently, smartphone during 2013–2017 next 3–5 years. revenue is forecast at $346.4 billion in 2017—a mainly due to lacklus- CAGR of 12.3 percent over 2012–2017. ter demand for basic Premium-category smartphone sales, which and low-cost phones exceeded PC shipments for the first time in both developed and developing economies 23 in 2011, will likely continue outperforming (see figure 10). However, basic and low-cost PC shipments through 2017 due to growing phones will likely experience stable demand in consumer interest.21 Even more startling is emerging markets as cost-conscious consum- the upward march of tablet device adoption, ers seek out increasingly affordable devices. with worldwide tablet shipments anticipated Indeed, as mobile technology development to grow at a CAGR of 31.2 percent during accelerates, a trickledown effect is prevalent

10 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Figure 9. PCs, smartphones, and tablets: Unit shipment forecast, worldwide, 2011–2017 CAGR (2012-17): Unit shipments (millions) +14% 1,000

900

800

700

600 +31%

500

400 -4% 300

200

100

2011 2012 2013 2014 2015 2016 2017

n PCs n Smartphones n Tablets

Source: Carolina Milanesi and Ranjit Atwal, Forecast: Desk-based PCs, notebooks, ultramobiles and tablets, worldwide, 2010–2017, 1Q13 update, Gartner, March 20, 2013; Annette Zimmermann et. al., Forecast: Mobile phones, worldwide, 2011–2017, 1Q13 update, Gartner, March 22, 2013; Deloitte analysis. Note: “Smartphone” represents only the premium communication device category covered by Gartner, and excludes utility and basic communication device categories.

Graphic: Deloitte University Press | DUPress.com

in many markets, helping spur growth in demand for smartphones will likely remain low-end product categories across emerging strong through 2017 as technology develop- economies.24 For example, in regional markets ment accelerates and prices decline across such as China, technology reuse has never the category. Emerging markets are projected been higher and is set to spike further, with to again lead the way in smartphone growth a reference design approach in semiconduc- projections. The emerging and mature Asia- tor chipset utilization becoming common Pacific region in particular is set to become the among vendors. This will likely help stimulate leading smartphone market by 2017, with fore- demand and lay the groundwork for waves of cast adoption in excess of 21 percent. Greater lower-end product introductions across the China, North America, and Western Europe smartphone segment.25 are forecast to be the second-, third-, and On the flip side, however, with global fourth-biggest end markets for smartphones, carriers’ network transitions to the 4G era respectively, as of 2017 (see figure 11).26 increasing, the consumer transition from Emerging regional markets, such as the basic to smartphone adoption is growing, and Middle East and Africa (26.1 percent CAGR

11 A Deloitte Research Open Mobile report

during 2012–2017), Eastern Figure 10. Smartphones vs. utility and basic phones, unit shipment Europe (24.4 percent), and Greater forecast, worldwide, 2011–2017 China (15.8 percent), are also projected to experience signifi- Worldwide unit shipments (millions) 2,500 cant growth during 2013–2015. CAGR (2012–17): 4.0% China, in particular, will likely emerge as the second-largest 2,000 regional market for smartphones +14.2% by 2017, accounting for 20 percent 1,500 of global shipments (see figure Smartphones 11).27 Other forecasts are even 1,000 more bullish; some analysts expect China’s connected device market, 500 -1.1% which encompasses a broad range Utility and basic phones of consumer electronic devices in addition to mobile devices, to 0 experience sixfold growth by 2020, 2011 2012 2013 2014 2015 2016 2017 representing some $700 billion Source: Annette Zimmermann et. al., Forecast: Mobile phones, worldwide, 2011–2017, in potential revenue—twice the 1Q13 update,Gartner, March 22, 2013; Deloitte analysis. 28 current semiconductor market. Note: “Smartphone” represents the premium communication device category and excludes The key catalysts for this expected the utility and basic communication device categories. adoption surge are an abundance Graphic: Deloitte University Press | DUPress.com

Figure 11. Smartphone unit shipments (millions): % share by region, worldwide, 2011–2017 367 474 568 670 765 852 923 100% n North America n Western Europe

80% n Greater China n Mature Asia Paciﬁc n Latin America 60% n Middle East and Africa n Eastern Europe 40% n Emerging Asia Paciﬁc

20%

2011 2012 2013 2014 2015 2016 2017

Source: Annette Zimmermann et. al., Forecast: Mobile phones, worldwide, 2011–2017, 1Q13 update, Gartner, March 22, 2013; Deloitte analysis. Note: North America includes the United States and Canada. Greater China includes China, Taiwan, and Hong Kong. Mature Asia-Paciﬁc includes Australia, New Zealand, Japan, South Korea, and Singapore. Emerging Asia-Paciﬁc mainly includes India, Indonesia, Malaysia, and Thailand. Graphic: Deloitte University Press | DUPress.com

12 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

of carrier-subsidized smartphones, custom- first-time owners.29 In the United States this ized handsets from domestic vendors, and trend is particularly pronounced, with tablet the move to 3G and 4G networks, all spurring ownership thought to be in the region of 25 smartphone demand in China, emerging Asia percent in 2012, compared to just 3 percent in Pacific countries, and Latin America during 2010.30 Indeed, a recent study by Deloitte pre- 2012–2017. dicted that almost 50 percent of US consumers will likely own tablets by 2013, with 22 percent The tablet takeover likely to be first-time buyers.31 One of the biggest shifts in mobile device Au revoir, PCs? ownership over the last 12 months has been driven by a voracious consumer demand for In the short term, a victim of this shift tablets, which have undoubtedly become the toward ultra-mobile computing platforms mobile device du jour across an increasingly could be the market for desktop PCs. With the wide demographic. Such is the extent of the mobile web experience increasingly match- demand that some analysts predict up to 44 ing, and in some cases exceeding, the desktop percent of consumers worldwide will own PC web experience, a significant amount of IP tablets by mid-late 2013, with 25 percent being and Internet traffic is originating from non- PC devices. As tablets such as Apple’s iPad® become Figure 12. Tablets and PCs: Unit shipment forecast, worldwide, 2011–2017 “content creation devices,” Worldwide unit shipments (millions) consumer demand for PCs CAGR (2012–17): 9.9% 800 is expected to taper off and remain sluggish through 700 2017 (see figure 12). New 600 design form factors and innovative mobile software 500 +31.2% development will likely spur 400 Tablets consumer adoption and

300 help address email, social networking, web browsing, 200 and mobility requirements at -4.5% 100 lower price points compared PCs to PCs. 0 2011 2012 2013 2014 2015 2016 2017 From a regional perspective, North America and Source: Carolina Milanesi and Ranjit Atwal, Forecast: Desk-based PCs, notebooks, ultramobiles and Western Europe continued tablets, worldwide, 2010–2017, 1Q13 update, Gartner, March 20, 2013; Deloitte analysis. to propel tablet demand in Graphic: Deloitte University Press | DUPress.com

As tablets such as Apple’s iPad® become “content creation devices,” consumer demand for PCs is expected to taper off and remain sluggish through 2017.

13 A Deloitte Research Open Mobile report

Figure 13. Tablet shipment forecast (in millions): % share by region, worldwide, 2011–2017

60 120 197 266 338 401 468 100% n North America n Western Europe n 80% Greater China n Mature Asia Paciﬁc n Emerging Asia Paciﬁc 60% n Latin America n Middle East and Africa

40% n Eastern Europe

20%

2011 2012 2013 2014 2015 2016 2017

Source: Carolina Milanesi and Ranjit Atwal, Forecast: Desk-based PCs, notebooks, ultramobiles and tablets, worldwide, 2010–2017, 1Q13 update, Gartner, March 20, 2013; Deloitte analysis. Note: North America includes the United States and Canada. Greater China includes China, Taiwan, and Hong Kong. Mature Asia Paciﬁc includes Australia, New Zealand, Japan, South Korea, and Singapore. Emerging Asia Paciﬁc mainly includes India, Indonesia, Malaysia, and Thailand.

Graphic: Deloitte University Press | DUPress.com

2011–2012. However, emerging market regions restrained, pace within the enterprise. A recent (Greater China, in particular) are predicted sample of CIOs surveyed in Europe and the to slowly develop into the major end markets, United States revealed that firms that plan to driving tablet demand through 2017. In terms purchase (or have purchased) tablets for cor- of total shipment, 256.9 million tablets are porate use are slowly increasing.34 While this expected to be shipped worldwide in 2015, research reflects a somewhat slow uptake by representing a 31.5 percent CAGR through- enterprises, support is steadily rising; approxi- out 2012–2015. Subsequent tablet revenue mately 30 percent of those surveyed expect to is expected to increase from $41.6 billion in support or adopt tablets in the workplace by 2012 to $64.3 billion in 2015—a CAGR of 15.6 the end of 2013 (see figure 14).35 Key bar- percent. Among all regions, North America— riers to adoption are currently cost-related primarily the United States—will continue to and mainly associated with device hardware fuel tablet shipments through 2016 (see figure investment and software support. Additionally, 13).32 Deloitte’s survey reveals 36 percent of US network access and security concerns, com- consumers already own a tablet device, with bined with a general lack of enterprise tablet Millenials and Xers being the leading users. software applications, are also thought to be Moreover, the survey shows that Millennials inhibitors to a more widespread adoption. and Xers are the most likely to use a tablet as a These concerns should be addressed in 2014 viable replacement for a laptop.33 for tablet adoption to make a greater corporate Beyond the consumer market, tablet adop- impact even as corporate smartphone adoption tion is progressing at a steady, albeit more reaches new heights.

14 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Figure 14. Employer support for tablet use in the enterprise* Percent of respondents, global

Employer subsidizes tablet 2%

Employer provides tablet 4%

Employer allows user-owned tablet to access 10% company’s network

Employer does not allow user-owned 15% tablet to access company’s network 0 3 6 9 12 15

Source: * Morgan Stanley, Tablet landscape evolution: Window(s) of opportunity, 2012.

Graphic: Deloitte University Press | DUPress.com

Figure 15. Device ownership, 2012 and 2011**

Smartphone 55% 2011–43%

Laptop 26% 75% 2011–10% 2011–75%

Tablet 36% 2011–13%

Source: ** Deloitte, State of the media democracy, seventh edition, 2013. Strong sales of tablets and smartphones drove growth of the “Mobile Digital Omnivores” (laptop + smartphone + tablet owners) by 160% (from 10% in 2011 to 26% in 2012).

Graphic: Deloitte University Press | DUPress.com

15 A Deloitte Research Open Mobile report

A profile of the mobile semiconductor industry

ROM a market perspective, the semicon- debt concerns, and the impact natural disas- Fductor mobile ecosystem is a complex ters, such as the Japanese tsunami, had on and evolving entity. Growth opportunities in consumer demand and supply chain capability component end markets are, on the surface, (see figure 16). Consequently, overall revenue somewhat fragmented, but consolidation growth has been hampered, with PC OEMs across a number of key technology trends is in particular facing demand challenges that evident. This consolidation will have important directly negated investment in capital expendi- ramifications for opportunities (and chal- ture through early 2012. lenges) across the semiconductor end markets, However, despite the continued macroeco- which combined, make up the broader mobile nomic slowdown and lackluster PC demand, semiconductor ecosystem. Before breaking the emergence of increasingly popular, sophis- down the end markets, a general overview of ticated mobile devices, specifically smart- the industry and the leading players is useful to phones, tablets, and ultrabooks, bodes well understand the current competitive landscape. for mobile semiconductor demand through 2015. With the likes of Apple and Samsung Overview and revenue continually sustaining hardware and software league tables innovation across the smartphone and tablet categories, the introduction of more sophis- The past two years have seen a number ticated semiconductor platforms will likely of challenges confront the semiconductor drive industry revenue and investment in industry as it deals with a stuttering recovery multiple end markets. To that end, major semi- from the global economic slowdown, sovereign conductor manufacturers—including Intel,

From a market perspective, the semiconductor mobile ecosystem is a complex and evolving entity. Growth opportunities in component end markets are, on the surface, somewhat fragmented, but consolidation across a number of key technology trends is evident.

16 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Figure 16. Semiconductor revenue and growth forecast, worldwide, 2010–2017

CAGR (2012–17): 5.1% 400 382.9 12% 367.1 347.9 336.1 312.1 301.5 306.8 298.6 300 9% 7.7%

5.5% 200 6% 4.5% 4.3%

100 3% 1.8% 3.5%

0 0%

2010 2011 2012 2013 2014 2015 2016 2017

-2.7% -100 -3%

n Revenue ($ billions) YoY change

Source: Bryan Lewis and Peter Middleton, Forecast analysis: Semiconductors, worldwide, 1Q13 update, Gartner, April 17, 2013; Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

Figure 17. Semiconductor companies’ performance, 2011–2012 year-over-year revenue growth, worldwide

27.2% Qualcomm

20.1% Sony Top 5 vendors 9.5% Broadcom

8.7% Nvidia

6.9% NXP

-2.3% Industry

-13.2% STMicro

-13.6% Toshiba

-14.0% Next 5 vendors TI

-14.4% Freescale

-17.7% AMD

-30% -20% -10% 0% 10% 20% 30% Revenue growth YoY, 2011–12

Source: Dale Ford, Qualcomm rides wireless wave to take third place in global semiconductor market in 2012, iSuppli, December 4, 2012; Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

17 A Deloitte Research Open Mobile report

Samsung, and TSMC—have all announced the highest among the top 10 companies, a aggressive spending plans, given an expected result of its leading position in the fast-grow- positive demand outlook for mobile devices ing mobile devices market, which enabled it to in particular. leapfrog three positions on the revenue league table to No. 3 in 2012 (see table 1). Although A fragmented competitive dominant in the PC and server markets, landscape major competitors to Intel such as Samsung, Qualcomm, and Broadcom will continue to At the enterprise level, the industry remains bolster market share in the mobile smartphone broadly fragmented, with a number of com- and tablet markets—traditionally an area on 36 panies competing across distinct product end which Intel has had little focus. markets and serving a wide number of indus- At a regional level, opportunities in emerg- tries. Intel remains the world’s biggest semi- ing markets are propelling growth across the conductor firm, sustaining a leading market main vertical industries and end markets. PC share of approximately 16 percent built on consumption in the near term remains some- solid microprocessor and memory sales and what buoyant; emerging markets accounted bolstered with the company’s recent Infineon for roughly two thirds of total PC shipments (baseband unit) acquisition (see table 1). in 2012. This trend is expected to continue, Samsung’s semiconductor group continues to with forecasts for 2016 anticipating China, hold the No. 2 position, increasing its mar- Brazil, Russia, and India to lead PC consump- ket share to 10.1 percent in 2012 and steadily tion, ahead of the United States. This is a narrowing the gap with Intel (see figure 17). significant shift from 2010–2011, when only Qualcomm’s revenue growth of 27 percent was two of the top five PC consumers were from emerging markets.37

Table 1. Top 10 semiconductor vendors by revenue, worldwide, 2012

2011–2012 Revenue ($ billions) Market share Revenue change

Intel 47.5 15.7% -2.4%

Samsung* 30.5 10.1% 6.7%

Qualcomm 13.0 4.3% 27.2%

TI 12.0 4.0% -14.0%

Toshiba 11.0 3.6% -13.6%

Renesas 9.4 3.1% -11.4%

SK Hynix 8.5 2.8% -8.9%

STMicro 8.5 2.8% -13.2%

Broadcom 7.8 2.6% 9.5%

Micron 7.0 2.3% -5.6%

Source: Dale Ford, Qualcomm rides wireless wave to take third place in global semiconductor market in 2012, iSuppli, December 4, 2012. * Samsung semiconductor revenue only.

18 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Table 2. Semiconductor revenue, % contribution by end-use application, 2012–2017, worldwide

End-use application 2012 2013 2014 2015 2016 2017

Data processing 39.3 39.5 39.9 39.4 39.7 39.5

Communications 28.7 29.1 29.0 29.5 29.4 29.5

Consumer 14.3 13.8 13.2 12.8 12.0 11.4

Industrial 8.3 8.3 8.6 8.7 9.1 9.3

Automotive 8.2 8.2 8.2 8.5 8.8 9.2

Military and civil aerospace 1.2 1.2 1.1 1.1 1.1 1.1

Total 100.0 100.0 100.0 100.0 100.0 100.0

Source: Bryan Lewis and Peter Middleton, Forecast analysis: Semiconductors, worldwide, 1Q13 update, Gartner, April 17, 2013. Note: Numbers rounded off for purposes of this analysis.

Breaking down the and 2012, as integrated platforms (primar- mobile end markets ily an application processor plus baseband modem) helped reduce system costs and A deeper analysis of the mobile semicon- offered significant power-saving benefits to ductor ecosystem reveals a number of key OEMs. Leading the way is Qualcomm (see component end markets across which technol- figure 19), which benefited from solid adoption ogy trends and drivers are making a sustained of its Snapdragon platform in multiple devices, impact on top-line growth opportunities. building on established relationships with a number of smartphone vendors that included Application processor end Samsung, LG, Nokia, RIM, and Motorola. The market snapshot firm’s Snapdragon S4 platform is also being used by Microsoft as part of its initial rollout of In the mobile application processor (AP) Windows RT-based tablets based on the ARM market, it’s a tale of two segments, with smart- architecture. Texas Instruments (TI) also held a phones and the booming tablet market driving competitive market position in 2011–2012, due revenue. Increasing sales of high-end smart- to the steady adoption of its OMAP integrated phones from tier 1 manufacturers boosted dis- platform across a range of tablets and hand- crete AP sales during 2011–2012 (see figures helds38 (including the hugely popular Amazon 18 and 19). The continued strong demand for Kindle). Likewise, Samsung was successful in high-end phones using discrete processors leveraging its Exynos platform across similar (for example, the Samsung Galaxy series and device categories. NVIDIA also improved its Apple’s iPhone® series) helped sustain sales. market share to 3.6 percent in 2012, primar- This allowed semiconductor companies to ily due the increased adoption of its dual-core enhance flexibility by replicating proces- Tegra platform across multiple Android smart- sor design across multiple device categories, phones and tablet devices as well as adop- thereby maximizing device performance. tion of the processor in Microsoft’s Windows At the other end of the segment, growing RT-based products.39 ST-Ericsson and demand for low-end and mid-range smart- Broadcom also improved their traction with phones in emerging markets fueled growth the high-volume, low-cost smartphone devices for integrated application processors in 2011 powered by Android.40 Meanwhile, Intel is

19 A Deloitte Research Open Mobile report

looking to quickly catch up, via its Atom its chip design IP and architecture rather than processor for use on the Windows 8 platform, by manufacturing its own chipsets, and as of which aims to compete with both the Tegra 2012, its ecosystem numbered close to 1,000 and Snapdragon platforms in the process. partners. By providing the process architecture Nonetheless, from a broader architecture IP license and the necessary design tools, ARM perspective, ARM continues to dominate in the allows its partners to design custom chips mobile application processor market for smart- based on ARM CPU cores. Major mobile OS phones and tablets. As of 2012, an estimated platforms designed for mobile chips based on 95 percent of smartphones were powered by ARM’s processor architecture include Apple’s ARM CPU cores.41 Major manufacturers such iOS, Google’s Android, and the Windows as Qualcomm, Samsung, Apple (Ax series), platform—another indication that Intel has Broadcom, NVIDIA, and TI have all licensed been relatively late to capitalize on the mobile and continue to license ARM’s processor market opportunity.42 technology to manufacture chips for mobile To remedy this, Intel is aggressively devices. Leveraging a powerful, ecosystem- attempting to penetrate the smartphone based partnership has allowed the company to market with its new range of Atom x86- compete with Intel’s x86 architecture platform based processors, going head to head with and carve out a dominating position in the ARM in developing power-efficient chips smartphones sector. Partnerships with semi- to serve the immediate market. In parallel, conductor design vendors, chip manufacturers the company, which currently manufactures and foundries, mobile device vendors, and mobile chips using 32-nanometer (nm) line mobile OS providers have cemented ARM’s widths, is also ramping up a new 22-nm 3D position as the cornerstone of the mobile manufacturing process that is scheduled to ecosystem. The firm captures value by licensing come online in 2013; processors are expected

Figure 18. Smartphone application processor, unit Figure 19. Smartphone application processor, unit shipments (millions), worldwide, 2011–2012 share, worldwide, 2012

Unit shipment (millions) 2012 units: 777.4 million

0.3% 800 Qualcomm 0.3% 0.1% 3.7% 0.9% 700 Samsung* 1.5% 777.4 MediaTek 3.2% 32.3% 600 4.2% Broadcom 500 TI 5.5% 544.7 Marvell 400 ST-Ericsson 300 7.9% NVIDIA Freescale 200 Renesas 100 Intel 13.1% 0 NEC Others 2011 2012 27.2%

Source: David Wong, Amit Chanda and Parker Paulin, Intel: Poised to grow presence in tablets and smartphones, Wells Fargo Securities, May 7, 2013; Deloitte analysis. * Samsung’s unit shipment data includes application processors manufactured for Apple based on Apple’s design. In 2012, Apple’s processors constituted an estimated 55–65 percent of Samsung’s processor shipments.

Graphic: Deloitte University Press | DUPress.com

20 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

to be commercially available by 2014. In positions of baseband vendors Qualcomm and response, ARM signed an agreement with Broadcom. In particular, integrated application GlobalFoundries in August 2012 to col- processors helped propel revenues. Qualcomm laborate on manufacturing chips using 3D also holds a dominant position in the market transistor technology.43 for USB dongles and embedded solutions Looking further out, Intel’s development of with its Gobi platform. Companies such as a more power-efficient PC processor, using the MediaTek, on the other hand, attribute their next-gen Haswell architecture—the successor past revenue growth to older 2G and 2.5G to Ivy Bridge—will optimize power consump- solutions, and are now focused on increas- tion due to an integrated CPU and platform ing market share in 3G and 4G solutions (see controller hub. This will theoretically reduce figure 21). consumption by approximately 30–50 percent compared to Ivy Bridge. Expectations are that RF semiconductor end Haswell will eventually trickle down into the market snapshot tablet market over the next 2–3 years. But Radio frequency (RF) device revenue despite these moves, the current mobile appli- increased 4.3 percent year over year to $5.3 cations processor market is still considered to billion in 2012. RF transceiver revenue grew be of somewhat limited growth potential for 6.6 percent year over year, while power ampli- 44 the company. fier revenue was up 2.8 percent (see figure 22). Transceivers continue to be increasingly Cellular baseband end integrated with baseband processors, mainly market snapshot in low-end and mid-range phones. The market As global wireless network providers main- for power amplifiers benefited from rising tain a steady upgrade of network technology, demand for mobile phones with 3G and 4G semiconductor companies are well placed to technologies, which require extra power ampli- profit from the increasing adoption of High- fiers to support additional bands. This led to Speed Packet Access+ (HSPA+) technology firms such as Skyworks and Avago benefiting in smartphones, coupled with solid GSM/ from key design wins with large smartphone GPRS/EDGE baseband processor unit growth. vendors, including Apple and Samsung. In the 4G LTE network rollout began ramping up transceivers segment, leading baseband ven- in 2H11 in the developed markets, and is dors such as Qualcomm, STMicro, Intel, and expected to become a significant growth driver MediaTek held strong market positions, given for baseband processors 2013 onward. their alliances with tier 1 smartphone vendors Other growth drivers for baseband modem (see figure 23).45 chipsets (adjacent to the mobile phone segment) include laptops, tablets, ultrabooks/ Wireless connectivity end hybrids, and e-readers. M2M technolo- market snapshot gies, including smart meters, are also being The market for wireless connectivity has equipped with wireless connectivity solutions. transitioned from single-function chipsets Verticals such as the energy and the automo- for Bluetooth, Wi-Fi, and GPS toward wire- tive industry, which are investing heavily in less combo chips, which combine some or all M2M technology, will likely provide a robust of those functions within a single chip solu- and steady growth channel for semiconductor tion. While solutions that combined Wi-Fi, companies 3–5 years out. Bluetooth, and FM remained dominant in In terms of the competitive landscape, the 2011 and 2012, combo solutions that also inte- sustainable growth of 3G and 4G network grate GPS have increasingly gained traction technologies contributed to the strong revenue in 2013.

21 A Deloitte Research Open Mobile report

Figure 20. Mobile phone cellular baseband processor Figure 21. Mobile phone cellular baseband processor revenue ($ billions), worldwide, 2009–2012 revenue share, worldwide, 2012

Revenue ($ billions) 2012 revenue: $15.4 billion

20 Qualcomm 0.8% 0.7% 3.8% 1.4% MediaTek 1.9% Intel 15 4.0% STMicro 15.4 4.0% 14.2 14.6 Broadcom 10 12.8 5.4% Spreadtrum TI 59.6% Marvell 8.5% 5 Freescale RDA 9.8% Others 0 2009 2010 2011 2012

Sources: Jon Erensen, Mark Hung, and Roger Sheng, Market share analysis: Mobile phone application-specific semiconductors, worldwide, 2012, Gartner, May 28, 2013; Jon Erensen, Mark Hung, Roger Sheng, and Michele Reitz, Market share analysis: Mobile phone application-specific semiconductors, worldwide, 2011, Gartner, June 1, 2012; Jon Erensen and Mark Hung, Market share analysis: Mobile phone application-specific semiconductors, worldwide, 2010, Gartner, April 18, 2011; Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

Figure 22. Mobile phone RF devices revenue Figure 23. Mobile phone RF devices revenue share, ($ billions), worldwide, 2009–2012 worldwide, 2012

Revenue ($ billions) 2012 revenue: $5.3 billion

6 Skyworks 14.6% 19.7% 5 Qualcomm 5.3 3.0% 5.0 5.1 RF Micro 4 4.3 4.3% TriQuint Avago 3 4.7% Murata 2 STMicro 4.7% 15.3% Intel 1 6.4% MediaTek 0 6.5% Fujitsu 2009 2010 2011 2012 7.6% 13.1% Others

Sources: Deloitte analysis; Jon Erensen, Mark Hung, and Roger Sheng, Market share analysis: Mobile phone application-specific semiconductors, worldwide, 2012, Gartner, May 28, 2013; Jon Erensen, Mark Hung, Roger Sheng, and Michele Reitz, Market share analysis: Mobile phone application-specific semiconductors, worldwide, 2011, Gartner, June 1, 2012; Jon Erensen and Mark Hung, Market share analysis: Mobile phone application-specific semiconductors, worldwide, 2010, Gartner, April 18, 2011.

Graphic: Deloitte University Press | DUPress.com

22 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Figure 24. Mobile phone wireless connectivity Figure 25. Mobile phone wireless connectivity revenue ($ billions), worldwide, 2009–2012 revenue share, worldwide, 2012

Revenue ($ billions) 2012 revenue: $2.5 billion

3.0 Broadcom 2.2% 1.7% 2.1% Qualcomm 2.5 2.6% CSR 2.6 2.5 3.3% 2.0 2.3 3.6% Texas 47.4% MediaTek 1.5 1.8 8.0% RDA Marvell 1.0 NXP 8.7% STMicro 0.5 Inside Secure 0.0 Others 10.1% 2009 2010 2011 2012 10.3%

Graphic: Deloitte University Press | DUPress.com

Broadcom continues to lead the wireless Mobile memory end connectivity market, leveraging its mobile market snapshot phone combo chip solutions that integrate Smartphone and tablet adoption are Wi-Fi, Bluetooth, and FM on a single chip enabling a revival of DRAM and NAND (see figure 25). The company also introduced demand and boosting the memory market in a Bluetooth + GPS + FM combo chip solution the process. As both device categories increas- and remains well positioned to benefit from ingly combine content consumption with the tablet trend, being the incumbent supplier content creation, software applications requir- for Apple’s iPad platform (as well as the major ing substantial memory capability are on the supplier for the iPad’s touchscreen controller). rise. Gaming and video are two content-rich Innovation in connectivity solutions remains growth categories for mobile applications that the firm’s strong suit, and this, combined with are set to continue their upward growth curve its forward-looking position on integrating through 2015. As a result, strong growth is pro- near field communications (NFC) technology jected in both the DRAM and NAND markets into more combo chip solutions, will act as in the short term as smartphone technology a catalyst for its top-line growth objectives.46 trickles down into lower-end device categories Other major vendors, including Qualcomm and the emergence of more powerful tablets and MediaTek, also launched combo chip sets and “superphones”48 begins to take hold (see in 2012, such as a quad-combo chip that inte- figure 26). In terms of market leadership, grates GPS, Bluetooth, Wi-Fi, and FM.47 Samsung remains dominant in both memory markets, leveraging its leading technology innovation and economies of scale (see figures 27 and 28).

23 A Deloitte Research Open Mobile report

GPU end market snapshot Figure 26. Mobile memory revenue forecast, worldwide, 2011–2013 In line with the other semiconductor end markets, the GPU market continues to see increased demand 2011 14.1 resulting from robust smartphone and tablet adoption. With both device categories utilizing GPUs to enable functions such as advanced gaming 2012 14.9 capabilities, user interface capabilities, and browser acceleration, growth in this market is projected to con- 2013 16.2 tinue to climb. Innovation trends include increasing functionality, with some of the latest chips includ- 0 5 10 15 20 ing augmented reality capability and Source: IHS iSuppli, Mobile memory chip market growth propelled by smartphones high-performance image and video and media tablets, 2013. processing functionalities. Note: Mobile memory revenue forecast includes the NAND and NOR ﬂash memory On the competitive landscape categories, the NAND sub-segment of embedded multimedia card (eMMC), and the mobile dynamic random access memory (DRAM) segment. front, Imagination Technologies continues to hold a leading position in the Graphic: Deloitte University Press | DUPress.com

Figure 27. Mobile DRAM revenue share, Figure 28. NAND ﬂash, revenue share, worldwide, 4Q12^ worldwide, 4Q12*

4Q12 revenue: $2.7 billion 4Q12 revenue: $5.3 billion

Winbond, Nanya, Intel, 8.6% Micron- 0.9% 0.3% Elpida, 20.3% Micron, 12.4%

Samsung, 38.7% Samsung, 54.7% SK Hynix, 12.7%

SK Hynix, 23.8% Toshiba, 27.6%

Sources: ^ “TrendForce: 4Q12 mobile DRAM revenue grows 21%, Korean DRAM manufacturers claim 80% of the market,” DRAMeXchange, February 2013. * “TrendForce: 4Q12 branded NAND ﬂash supplier ranking,” DRAMeXchange, February 2013.

Graphic: Deloitte University Press | DUPress.com

24 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

global mobile GPU market, with a 46.5 percent The firm’s proprietary GPU GeForce chip is unit shipment share (see figure 29). The com- now integrated across its range of Tegra mobile pany’s GPU offerings are the preferred solution processor platforms. for most of the major smartphone and tablet vendors, including Apple and Samsung. Many Growth trends in the system-on-chip (SoC) vendors, including end markets TI and Intel, also license Imagination’s GPU intellectual property for their own integrated Across the end markets, several technol- processor platforms. ogy trends stand out as a bellwether to future Qualcomm is the leading mobile device revenue growth. GPU vendor (see figure 29), primarily due to its integration strategy of positioning its Integrated platforms Adreno GPU chip as part of the Snapdragon One of the major technology trends that platform, which is one of the leading inte- continue to impact the industry is the move grated mobile device processor platforms in toward integrated processors. These are chips the market. In the overall mobile GPU market, that combine multiple functionality on a Qualcomm currently ranks second, behind single chip platform—typically consisting of Imagination Technologies. memory and graphics functionality combined In the mobile GPU IP market, ARM is the with processor capability. The benefits of this No. 2 GPU design vendor, after Imagination approach are primarily performance- and cost- (see figure 29). Companies, including related, allowing vendors to theoretically lower Samsung, ST-Ericsson, and Broadcom, con- costs for customers by integrating application, tinue to license ARM’s GPU IP for their inte- graphics, and baseband processors that share grated SoCs. Meanwhile, NVIDIA, a relatively memory and power capabilities. As such, the small player in the overall mobile device GPU move toward integration in mobile devices market, continues to build out its integrated is rapidly gaining traction across the tablet processor offerings, focusing heavily on lever- and smartphone sectors. Major OEMs such aging its leading-edge capability in graphics.

Figure 29. GPU market share by mobile device unit shipments, worldwide, 1H12

ZiiLabs Nvidia 0.1% 2.5%

Imagination Qualcomm, NVIDIA, Imagination, ARM, 46.5% and ZiiLabs develop Qualcomm GPU IP Vivante, and DMP are GPU and sell GPU; they 26.4% providers design companies; all have proprietary GPU 71.0% license GPU IP design capabilities DMP 1.7% ARM Vivante 12.9% 9.8%

Sources: Deloitte analysis; Imagination Technologies still biggest in GPU IP, Qualcomm single largest proprietary GPU supplier, ARM and Vivante growing like weeds, Jon Peddie Research, January 2013. Note: “Mobile device” includes the following form factors: smartphones, tablets, and gaming consoles.

Graphic: Deloitte University Press | DUPress.com

25 A Deloitte Research Open Mobile report

Figure 30. Sustained demand for discrete processors from superphones

Global unit sales (millions) 49.7% of global Approximately 90 Samsung, 215.9 smartphone percent of dual-core 2012E sales* processors—used in Apple, 136.1 high-end smartphones—were 52.3% of global standalone in nature Samsung, 304.4 smartphone and did not integrate a 2013E sales* Apple, 204.1 baseband processor.^

0 50 100 150 200 250 300 350

Sources: Deloitte analysis and sources below: * Don Reisinger, “Apple, Samsung to own 50% of smartphone market by 2013,” CNet, January 2013. ^ Dual-core processors power nearly 20 percent of smartphones in 2011; Samsung leads with 60 percent volume share, Strategy Analytics, January 2013.

Graphic: Deloitte University Press | DUPress.com as Broadcom, Qualcomm, Nvidia, and TI are through 2014 due to sustained demand for prominent in pushing the technology out to a advanced functionality in high-end devices. wide customer base that is eager for low-cost Smartphone vendors such as Apple and and power-efficient solutions. Samsung (with the iPhone and Galaxy devices, From a market perspective, upticks in respectively) currently use discrete chips for smartphone adoption, particularly in emerging the flexibility of customizing the chip design markets, will again fuel growth in integrated across multiple devices and form factors (see platforms. As multi-core CPUs make headway figure 30). into entry-level smartphones, power consumption and cost will likely become key elements. Multi-core processor demand rises Consequently, the trickle-down effect of tech- Recently, the smartphone category has nology reference design reuse in markets such also seen a rise in the use of dual-core and as China will likely ensure that a wave of low- quad-core processors, which helps lower the end, affordable smartphone designs hits the number of application processors required on emerging markets 2013 onward. Additionally, a single wafer. Typically, a single wafer can be with LTE forecast to have a big impact on comprised of over 1,260 single-core processors, driving adoption, demand for power-efficient which is reduced to approximately 560 with a handsets with integrated platforms such as dual-core processor and to approximately 370 Snapdragon and Tegra is expected to continue on a quad-core processor.49 Given the increas- to climb. ing consumer demand for high-end smartphones with multi-core processors, Apple Superphones need more power and Samsung use both dual- and quad-core Parallel to the shift toward integrated chip- processors in their devices. As such, applica- sets, albeit at a reduced level, is the predicted tion processor vendors are likely to continue sustained demand in the discrete semiconduc- to ramp up capacity and expand their invest- tor end market to serve the emerging super- ments in this area steadily through 2015 (see phone mobile device category. These chips, figures 30 and 31). which are used in several electronic applica- Looking further out, growing demand tions—most importantly, in managing electric for faster applications in mobile devices will power—will likely see steady revenue growth potentially lead to increased demand for

26 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

multi-core processors, which have faster pro- Figure 31. Mobile application processor revenue, global, 2011–2015 cessing speeds and lower energy consumption compared with single-core processors. Revenue ($ billions) Revenue growth YoY Additionally, multi-core processors enable 40 70% higher performance while supporting parallel

35 61.3% 60% execution of multiple applications. 30 50% Moore’s Law propels another 25 40% wave of shrinking 20 26.4% The race to boost chip performance 22.1% 30% 15 32.2% through shrinking components continues 20% 10 unabated. With the industry now transition-

5 10% ing to sub-22 nm linewidths and 3D transis- 10.6 17.1 22.6 27.6 34.9 tors, the push by companies such as Intel, 0 0% Qualcomm, and Samsung to develop chips 2011 2012 2013 2014 2015 on smaller nodes is noteworthy. Intel, in Revenue ($ billions) YoY change particular, has an aggressive R&D pipeline,

Source: Deloitte analysis; James Song, Semiconductor 2H12 outlook report, which will likely see the company become KDB Daewoo Securities, June 28, 2012. the first vendor to develop chips for PCs Note: Data based on demand (and capacity requirements) for underlying on a 14-nm linewidth in 2013. By 2019, products including smartphones, tablets, and ultrabooks. Smartphones alone account for ~80 percent of AP demand. the company plans to introduce chips on a 50 Graphic: Deloitte University Press | DUPress.com 5-nm node. Meanwhile, foundries such as TSMC and UMC—while trailing Intel—plan to intro- Figure 32. Mobile application processor capacity requirement, global, 2011–2015 duce 16-nm/20-nm/22-nm chips for PCs during 2013–14. For mobile devices, a slight Mobile AP capacity Mobile AP unit demand lag is present, with vendors instead aiming 450 2,500 to introduce smaller (sub-22-nm) processors 400 2014–15 onward.51 350 2,000 Semiconductor manufacturers are also 300 exploring producing chips on larger 450-mm 1,500 250 size wafers, which will improve production scale and boost fixed-cost savings. Intel and 200 1,000 TSMC were the first to announce separate 150 plans to pilot production on 450-mm wafers. 100 500 Intel, in particular, signaled its intent in 50 49 156 256 322 410 this area by signing an agreement to invest 0 0 roughly $1 billion in backend equipment 2011 2012 2013 2014 2015 provider ASML’s 450-mm wafer and R&D programs.52 The significant capital investment Mobile AP capacity (1,000 wafers a month) Mobile AP unit demand (in millions) required by both chip vendors and backend equipment providers will likely push the Source: Deloitte analysis; James Song, Semiconductor 2H12 outlook report, move toward 450-mm wafers out to 2017.53 KDB Daewoo Securities, June, 2012. Note: Data based on demand (and capacity requirements) for underlying products including smartphones, tablets, and ultrabooks. Smartphones alone account for ~80 percent of AP demand.

Graphic: Deloitte University Press | DUPress.com

27 A Deloitte Research Open Mobile report

Mobile device memory is Figure 33. Total semiconductor revenue from automotive infotainment on the uptick as advanced system revenue forecast, global, 2012–2018 functionalities demand increased digital storage Semiconductor revenue ($ billions) As the level of mobile gaming becomes more sophisticated, 2012 6.5 increased memory capacity is required to handle more advanced tasks, which in turn is driving 2018 8.5 DRAM demand in the end markets.

Activities such as multitasking, 0 2 4 6 8 10 media encoding/decoding, and data synchronization in advanced mobile Source: Luca De Ambroggi, Infotainment in cars to enjoy solid prospects in the computing devices, all require future despite subdued growth in 2013, iSuppli, March 5, 2013. higher memory.54 Handset DRAM Graphic: Deloitte University Press | DUPress.com density increased from 2.3 GB in 2Q10 to 5.8 GB in 2Q12. In media Mobile growth in the tablets, mobile DRAM density increased from automotive industry 2.0 GB to 8.3 GB over the same period.55 The automotive industry has made great NAND flash storage capacity is also on the strides over the last three years to rapidly adopt rise as smartphone and tablet users voraciously wireless technology across a range of consumer consume content such as digital music, video, and enterprise products and services. With images, and books. For instance, three vari- in-vehicle electronics growing in complexity ants of Apple iPhone 5 smartphones were and demand, three categories for semiconduc- launched with different NAND flash memory tor connectivity growth currently stand out: features—16 GB, 32 GB, and 64 GB. in-vehicle infotainment (IVI), telematics, and insurance services. Growth trends in The semiconductor revenue opportunity vertical industries from in-car infotainment, which is by far the biggest automotive growth channel, is esti- Several industry verticals, where mobile mated to reach $8.54 billion by 2018 (see figure technology adoption is rapidly advancing, 33).56 Propelled by a surge in the integration are also providing semiconductor companies of infotainment and wireless connectivity with new routes for mobile-focused growth. solutions that will power the likes of next- Companies such as Qualcomm have dedi- generation location and navigation systems, cated strategies in place to take advantage of telematics, and connectivity, this section of opportunities across the Internet of Things the market is expected to grow 3–7 percent landscape. Increasing application complex- annually over the next five years. This will ity, consolidation of multiple subsystems, and subsequently provide companies such as Intel, rising demand for wired and wireless connec- Qualcomm, Nvidia, and Broadcom opportuni- tivity features are all contributing to semicon- ties to significantly expand their embedded ductor growth opportunities in the automotive, market footprint.57 In the telematics category, health care, energy, and retail industries. connectivity systems to assist vehicle diagnostics for maintenance purposes are among other services, such as fleet vehicle management and roadside assistance, that are converging with

28 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

care costs, improving care quality, and increas- Figure 34. Medical semiconductor market forecast by application, global, 2010–2014 ing general public access to health care. These reforms, together with an aging population, Revenue ($ billions) are driving the need to reduce the cost of treat- 6 ment, thus fueling demand for remote patient : 6.8% 5 CAGR treatment and monitoring. Within this niche market, device OEMs are utilizing semicon- 4 ductor processor platforms to enable advanced functionality in areas such as diagnostics and 3 therapy. In turn, this is helping fuel US wire-

2 less health monitoring device revenues, which are estimated to grow to $22.2 billion in 2015.59 1 Alongside this market, use of embedded medical monitoring devices is anticipated to grow 0 to 170 million devices by 2017.60 2010 2011 2012 2013 2014 At present, Intel has a technology lead in

n Consumer medical devices n Diagnostic, patient monitoring, and therapy the medical device platform market through n Medical instruments n Medical imaging the widespread use of its Atom processor, but it faces increasing competition from arch Source: Sergis Mushell, Market insight: Medical application a driver in 61 growth of semiconductors, Gartner, July 20, 2013 (refreshed June 21, 2013); rival ARM. Current challenges to sustained Deloitte analysis growth in this market are mainly with regard Graphic: Deloitte University Press | DUPress.com to fragmentation in wireless connectivity standards, which will challenge medical device advanced driver insurance systems in products vendors. Emerging standards are wide and such as pay-as-you-go driver insurance and varied and include IEEE 802.15.6, Bluetooth 62 driver-based insurance mapping. Low Energy (LE), Wi-Fi, and Zigbee. In In many instances, it is apparent that contrast, the portable health care device mobile operating system platforms are con- platform market is less fragmented, with two tinually being enhanced in all areas of wireless main platforms: the Intel Atom-based Qseven automotive and integrated closely with today’s Computer-on-Module (COM), which supports mobile semiconductor platforms. Windows and Linux platforms, and the ARM- based Ultra Low Power COM (ULP-COM), mHealth markets set to soar which supports Android and Linux. Support for multiple connection protocols is crucial to As previously discussed, the US health the adoption of portable health care devices.63 care sector is witnessing increased adoption of Intel is also collaborating with GE in a mobile and wireless technology, with the global joint venture to develop mobile health care mobile health (mHealth) market forecast to devices.64 Qualcomm, through its subsidiary 58 be worth $11.8 billion by 2018. Within this Qualcomm Life, has also created a presence in fast-growing embedded segment, the con- this market with its 2net platform,65 a cloud- sumer medical device market is expected to be based platform designed to provide wireless a leading connectivity growth opportunity for connectivity, data management, and services semiconductor companies. for chronic disease management and a chan- Key drivers for this expected growth are the nel to share medical information. More than recent health care reforms in the United States, 161 partners and collaborators have currently such as the Affordable Care Act and the Health integrated or are considering integration with Insurance Portability and Accountability Act the 2net platform.66 (HIPAA), which are aimed at reducing health

29 A Deloitte Research Open Mobile report

Smart energy leading the way markets that semiconductor companies could be well placed to make an impact. Innovation in the energy sector is occurring Pathways to competitiveness in this sector at a rapid rate. In particular, the emergence of can often emerge from participating in vari- smart grid networks across the United States ous ecosystems that are forming in a number is perhaps the leading value proposition for of overlapping industries, bringing together exploiting wireless M2M technology. At the a wide variety of M2M value chain players. broadest level, these networks provide means From power generation through energy dis- of tracking energy utilization, mainly in the tribution and management, communications form of smart grid metering, for two-way com- infrastructure, and future applications devel- munication between consumers and the elec- opment, the scope and complexity of these tricity grid in real time. This enables significant ecosystems is growing. Leading semiconduc- energy and cost-saving features not possible tor companies competing in these networks with today’s grid.67 include Qualcomm, which has a number of Growth opportunities are significant: strategic alliances in place, including an equity Recent analyst projections suggest the US stake in Consert Inc., a smart grid technol- smart grid market will grow from $21.4 billion ogy provider.72 Qualcomm technology is also in 2009 to $42.8 billion in 2014.68 By 2014, 88 deployed in 241,000 cellular embedded smart percent of this market is projected to be com- meters as part of Texas New Mexico Power’s prised of device and hardware manufacturers, smart grid network.73 software developers, and communications equipment providers. Within these sub- Smart homes on the rise sectors, double-digit growth forecasts are not uncommon. In parallel, the total smart grid The impact of smart home74 technology communications market is forecast to experi- adoption is picking up speed, and semicon- ence tremendous market growth with a pro- ductor companies are well placed to capital- jected CAGR of 17 percent through 2015. The ize on it. Recent analyst projections suggest total market size in 2015 is projected to reach global smart home revenues are estimated to almost $1.6 billion.69 The market is divided reach $72 billion by 2017, with new ecosys- between wired (with a CAGR of 10 percent) tems focusing on the development of systems and wireless communications (with a CAGR and devices for smart home entertainment, of 26 percent). Currently the market size of wired commu- Figure 35. Smart home revenue forecast, global, 2012–2017 nications is larger, but wireless communications will surpass Smart home revenue ($ billions) it by 2015 and prove a larger market as more investments are CAGR: 27% 2012 13.7 8.1 + 21.8% made.70 Other forecasts suggest that the smart grid infrastructure market, including grid automation upgrades as well as 2017 41.3 30.5 + 71.8% smart metering, represents yet another golden opportunity that 0 10 20 30 40 50 60 70 80 will likely attract $200 billion in worldwide investment from n Smart home hardware n Smart home services and installation fees 2008 to 2015.71 It is across these infrastructure and components Source: Smart home revenues forecast to reach USD 72 bln by 2017, Telecompaper, January 8, 2013; Deloitte analysis. Graphic: Deloitte University Press | DUPress.com

30 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

computing, monitoring and control, and even management (HEM) solution that integrates health (see figure 35).75 Market trends to watch smart appliances, smart TVs, thermostats, in this area include the emergence of app- mobile devices, solar panels, and smart meters. based home automation solutions; adoption of multiple, and seamless, connectivity options Mobile payments finally within the home; and a general shift in con- set to take off? sumer discrete content viewing to a content-as- In the world of mobile technology-enabled a-service model. All of these trends will offer commerce, mobile payments technology has semiconductor companies opportunities to been the headline grabber for a number of develop and utilize new platform chip tech- years now. With the adoption of NFC77 technologies in a multitude of home connectivity nology steadily rising in the United States and solutions and consumer devices. global consumer markets, analysts predict that Companies already making inroads into the market for mobile payments will reach this market include Qualcomm, which has $617 billion in transaction value by 2016, with multiple wireless and wireline products as the North American market predicted to grow well as software solutions that enable smart at a CAGR of 126 percent during 2009–2016 76 home connectivity, and Samsung, which has (see figure 36).78 introduced AllShare, a digital content sharing Growth opportunities for semiconductor platform for smart home use. Samsung has companies in the area of mobile payments will also launched Smart View, a software appli- primarily depend on the scale of adoption of cation that links its Smart TVs with its own NFC technology and integrated NFC chipsets. brand of mobile devices, enabling users to In addition to payment technology, NFC is also stream live TV and other content. Also part of used for data share functions, interactive gam- the firm’s platform strategy is a home energy ing, mobile advertising, ticketing, transportation, and wireless streaming. In Figure 36. Mobile payments transaction value by region, global, 2009–2016 terms of penetration, nearly 40 million NFC-enabled devices Transaction value ($ millions) were shipped in 2011, and the $700,000 market is expected to grow at a CAGR of 82 percent and reach $600,000 800 million by 2016 (see figure 79 $500,000 38). It is estimated that over 50 percent of NFC-enabled 8% $400,000 5 devices will be smartphones and R: G CA 25 percent will be consumer e $300,000 id w electronic devices. Companies ld or developing NFC chip platforms $200,000 W North America include NXP, Inside Secure, TI, CAGR: $100,000 126% Broadcom, Qualcomm, and Intel. Many of these chipsets will $0 be integrated into devices such 2009 2010 2011 2012 2013 2014 2015 2016 as PCs/notebooks, routers, and gaming consoles. n Western Europe n North America n Asia Paciﬁc n Eastern Europe n Middle East n Africa n Latin America Despite the bullish forecasts, challenges exist with NFC reach- Source: Sandy Shen, Forecast: Mobile payment, worldwide, 2009–2016, Gartner, May 9, 2012; ing scale in predicted adoption. Deloitte analysis. In the United States, the mobile Graphic: Deloitte University Press | DUPress.com payments landscape continues to

31 A Deloitte Research Open Mobile report

be marked with uncertainty Figure 37. Mobile payments transaction value by technology, global, 2009–2016 as competing platforms, ecosystems, and technology Transaction value by technology ($ millions) standards remain in flux, $700,000 with major players such as Google, Visa, AT&T, and $600,000 NFC CAGR: 44% Verizon pushing ahead in $500,000 % developing their own pro- 8 5 : R prietary consumer platform G $400,000 A WAP/Web C solutions. Until collabora- ts CAGR: 97% en tion and integration occur m $300,000 ay p across the mobile payments ile ob M value chain, NFC payment $200,000 transaction values are likely SMS CAGR: to remain flat in the United $100,000 45% States and global markets.80 For chipset manufactur- $0 ers, a broader outlook on 2009 2010 2011 2012 2013 2014 2015 2016

NFC utilization beyond n SMS n WAP/WEB n USSD n NFC smartphone payment Source: Sandy Shen, Forecast: Mobile payment, worldwide, 2009–2016, Gartner, May 9, 2012; applications will be critical Deloitte analysis. while the mobile payments Note: Unstructured Supplementary Service Data (USSD) infrastructure develops Graphic: Deloitte University Press | DUPress.com to facilitate widespread consumer adoption.

Figure 38. NFC-enabled devices forecast, global, 2011–2016

Number of NFC-enabled devices (millions)

2011 40

CAGR: 2016 8.5 800 + 82%

0 100 200 300 400 500 600 700 800 900

Source: Mohamed Awad, NFC ready for mainstream adoption with new combo chip, Broadcom, December 11, 2012; ABI Research, August 28, 2012.

Graphic: Deloitte University Press | DUPress.com

32 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Keys to unlocking growth: Democratize or die!

AVING defined the mobile semiconduc- companies to look beyond the four walls of Htor landscape and assessed the most their organizations to secure new knowledge likely industries and end markets for mobile and new partners for collaboration. In doing semiconductor growth, in this section we so, company boundaries are becoming perme- switch our focus to the enterprise and explore able and the process for developing mobile the strategies, tactics, and resources used by technology-based innovation is increasingly successful semicon- distributed and dispersed across geographies ductor firms com- and talent demographics. peting in mobile. Not all the Unsurprisingly, Open innovation—a decade the tactics used by old and still evolving “smart people these companies for exploiting growth A decade has passed since Henry work for us. opportunities vary Chesbrough, the Berkeley professor often con- according to the sidered the leading academic on open innova- We need to specific industry, tion, laid the foundations for what many think product technol- is the dominant model in innovation strategy work with ogy, and market today. Since then, open innovation has allowed offering. However, companies from an increasingly wide variety of smart people our research did industries the chance to explore the advantages reveal a number of of cooperation and collaboration and kick-start inside and common threads their previously stagnant innovation process. across the core Even more significant are the risks associated outside our components of the with not pursuing open innovation. Evidence leading companies’ is mounting that firms that do not enter into company.” innovation strate- collaborative knowledge sharing can, as a gies. Specifically, consequence, expect to shrink their knowledge —— Henry Chesbrough, 2003 elements from the base over the long term, lose their ability to open innovation and partner with other organizations, and ulti- platform leadership mately stymie their entire innovation capabil- playbooks are thought to be key in pursuing ity82—all of which could be bad news for those breakthrough innovation in each company seeking growth in new mobile markets. 81 analyzed. This is enabling the emergence of As more companies shift from the tradi- democratized pathways to growth, allowing tional closed model of innovation and embrace

33 A Deloitte Research Open Mobile report

an open approach, gone are the days of relying development.87 Those companies that empha- on R&D to be kept in-house. No longer do size an inside-out process as their core open firms need to depend on the old ways of using innovation approach primarily look to shift internal resources to closely guard the develop- the exploitation of their intellectual property ment of intellectual property until new prod- beyond the firm’s boundaries through licensing ucts or services are launched in the market. mechanisms that are often used to spread tech- Open innovation is, in many ways, the antith- nology and ideas to other companies and other esis of this approach, helping companies look industries. Value is often generated and cap- beyond their boundaries to seek and utilize tured by using IP licensing royalty fees, making flows of knowledge, both inbound and out- agreements with other firms in joint ventures, bound, to accelerate internal innovation and and developing spin-off companies, all of expand markets for external innovation.83 And which can allow firms utilizing these tactics to as the model becomes more widely used, man- collectively generate more overall value from agement research on the topic is increasingly innovation. The focus on new business model focused on understanding the “mechanics” of innovation in new markets via corporate ven- execution.84 Consequently, current approaches turing is also an outlet for larger multinational to making open innovation work tend to fall companies that have the resources to pursue into three broad process categories: outside-in, such strategies. inside-out, and hybrid.85 The hybrid (or coupled) process The outside-in process A hybrid (or coupled) open innovation The most common approach to implement- process focuses on combining aspects of the ing open innovation is through a series of outside-in approach to secure new knowledge activities that can be characterized as outside- with tactics from the inside-out process to in processes.86 Here, the objective is to improve bring ideas to the market. Here, co-creation the company’s knowledge base primarily to between usually complementary partners via stimulate and enhance the process of inno- network alliances, joint ventures, and other vation. This is usually done by integrating vehicles for cooperation is combined with and interacting with external sources of new commercialization tactics to develop and knowledge such as those in the immediate exploit innovation.88 Many of the approaches competitive landscape, including suppliers, used in this process stem from lessons learned clients, customers, and competitors. Other in areas such as open source software develop- external sources can also include research ment where communities of self-organizing institutes and non-customers and suppliers peers evolve to enable product development. from completely different industries. It is here These approaches can involve integrating that the importance of developing an astute early adopters of technology (also known as innovation networking strategy is paramount, lead users), consumers, and universities and with the ability to expand networks into sup- research institutes. Partnering with innova- porting ecosystems that integrate disparate tion intermediaries such as InnoCentive and communities now recognized as a core skill. crowdsourcing solutions using digital platforms are also examples of deploying a hybrid The inside-out process process in an open innovation strategy. These Theinside-out approach to open innovation last two approaches are evidence that devel- concerns the routes by which firms can capture opments in social media technologies are value by bringing ideas to the market, trad- enabling companies to interact with an unprec- ing in intellectual property, and transferring edented variety of partners, drawing them into technologies to the external market for further the heart of their open innovation strategies in

34 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

all stages of product design, development, and core technology platforms (for example, the adoption in the market. Windows platform and the Microsoft Xbox Our study on semiconductor companies gaming platform) were expanded by networks pursuing mobile technology-based growth of developers and supported by the subsequent synthesized these three process categories into innovative efforts of complementors who made a single framework for analysis. This frame- these platforms a market success.92 work acts as a “lens” through which to view Examples of open innovation and platform the tactics being used for innovation in each leadership crossover are increasingly evident company across a wide range of industries. A in the telecom and mobile sectors, where both notable research finding is the predominant strategies are used across industry value chains use of platform leadership strategies in pursu- to gain access to new knowledge and tech- ing top-line mobile growth. nologies. This is often done via new network partnerships structured to develop product Platform leadership—at the and service platforms that are then used to core of mobile business forge new markets and increase competitiveness. For instance, network carriers are begin- model innovation ning to simultaneously use open innovation and platform leadership strategies to attract Underpinning many of the critical steps in partners and customers toward the develop- a company’s open innovation playbook is the ment of new wireless technology platforms. use of a broader platform leadership strategy AT&T, for example, has recently embarked on designed to quickly develop and deploy mobile its high-profile “foundry” strategy designed to technology platforms and gain traction in boost its venturing capability by orchestrating emerging mobile growth areas. From a com- ecosystems that create new ideas, stimulate petitive perspective, a number of dominant product innovation, and provide start-up com- platform leaders—companies adept at develop- panies with partnerships to market.93 Tactics ing and deploying mobile platforms designed used often draw on the “collaborative commu- to rally other new and established players (usu- nity” approach in which participants in open ally around particular operating system [OS] innovation networks build cooperative rela- technologies) and collaborate on new products tionships in environments where intellectual and services—have emerged, and they con- property (IP) rights are not threatened. This tinue to make significant gains in emerging is a key element of network building, aimed at mobile growth areas. 89 increasing knowledge flows, idea generation, Platform leaders control the develop- and the adoption of new product platforms ment of a core product or service that usually in a relatively IP-friendly environment. More emerges from a broader technology platform, competitive approaches are also common in the growth of which is also under the platform which network partners that compete with leader’s control.90 Success in this area often each other are driven by the need to maxi- relies on the ability to nurture ecosystems mize value capture through “co-opetition”—in of complementors91—firms that support and other words, competing in efforts to support build/expand the platform to provide greater the development of a common platform for value for customers. Astute leverage of net- the benefit of the broader network. In these works of complementors and the subsequent instances, the formation, adoption, and expan- adoption of the platform by users can lead to sion of network partnerships into support- large-scale network effects that can then be ing ecosystems is thought to be a key step exploited in the platform’s commercializa- in the process of generating and capturing tion phase. The personal computer and video platform value.94 game industries are good examples of where

35 A Deloitte Research Open Mobile report

In today’s mobile world, operating sys- functionally interdependent with most of the tems such as Google’s Android, the Windows other components of the overall system, which phone, and Apple’s iOS are some of the most ultimately drives consumer demand. Many prominent stand-alone platforms that help proprietary platforms consist of an architec- drive industry-wide innovation.95 Each of these ture of related standards, controlled by one or platforms successfully integrates separately more sponsoring firms. In a mobile computing developed technologies and attracts other third context, architectural standards could typically parties to add their own product innovations. encompass a number of processors, an OS, and Here, the parallels between the emergence of associated peripherals. the open mobile era and the evolution of the Platform leadership has a number of core personal computer (PC) industry are evident. elements, some of which overlap with open The explosive growth of the PC industry over innovation. For instance, both approaches the last two decades could not have occurred utilize ecosystems, which can be thought of as without a broad supporting cast of various stand-alone networks of interlinked compa- companies’ products. Operating systems nies working cooperatively and competitively combined with hardware such as keyboards, to co-evolve capabilities around innovation. monitors, and disk drives, along with software Moreover, in the context of “platform ecosys- applications and developer kits, all helped tems,” firms may collaborate through a com- fuel the stellar growth of the PC industry. The mon set of technology standards, creating same evolution can be forecast for the mobile a base architecture as a platform. Other key industry.96 The mobile OS platform will likely elements of platform leadership include: become a core technology architecture around Platform sponsorship: Platform leaders which layers of hardware and software will be drive innovation in their industry, motivating integrated by platform developers and ecosys- others to form communities to supply innova- tems of complementors. tion and support their core product platforms. Companies looking to boost business Companies adept at platform leadership wield model innovation by becoming platform lead- tremendous influence and help shape the ers in this area should first leverage network evolution of their industries. Firms looking to effects to increase the number of people using become platform leaders should attack the big the platform product. Doing so can lead to challenges in their fields and try to solve indus- more opportunities and incentives for comple- try-wide business problems that affect a large mentor firms to introduce complementary number of firms. To become a leader, com- products and services that may assist in grow- panies should then effectively “sponsor” the ing the platform.97 development of the platform and take on the role of curating, coordinating, and mobilizing Understanding the elements co-development networks with partner firms. of platform leadership Community building: Platform leadership often requires a comprehensive approach to In this study, we define a platform as simply network and ecosystem building to support a company’s technological building block of the development and commercialization of separate, interlinked components. These com- the platform. Leaders facilitate a community ponents can be either hardware or software— of complementors to supply add-on products or both—which can be further developed and/ and services that create momentum around or added to by third-party developers and, in the platform. Companies need to develop some instances, competitors. Products can be supporting innovation communities that thought of as platforms when they consist of reconfigure talent, resources, and capabilities one component or a subsystem of an evolving to serve and feed the platforms. Often, these technological system. Platforms are normally networks, which can be dispersed and drawn

36 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

together across disparate geographies, mimic chip sets were an early example of modular the mechanisms of the open source develop- architecture that was used to great effect across ment model, which has traditionally linked a wide range of the wireless industry’s products self-organizing talent quickly and efficiently to and services. develop code. The same process is now being IP and incentive management: Decisions used to boost product and service innovation on designing modular interfaces also require focused on enhancing the platform that coor- careful consideration of what to make open dinates their activities. and what to protect in terms of core intel- Platform interface design: The concept lectual property. Platform leaders should pay of modularity (the ability to separate techni- close attention to how much of their IP should cal components of the platform) in platform be made available to the market and to com- design is an important element of platform plementor firms. Not all platforms may need leadership. Modularity allows leaders to to be completely open. If too much IP is given combine technical innovation with business away, firms face the risk of complementors model innovation, boosting the potential for becoming competitors.98 Conversely, compa- commercial exploitation while sustaining con- nies that hoard too much of their IP run the trol over platform integration. Modularity in risk of severely diminishing the potential for platform interface design promotes outsourc- innovation that can sustain platform momen- ing in collaborative development, provided tum. Therefore, knowing what to protect versus that the platform’s architecture and interfaces what to disclose in order to stimulate third- are appropriately designed to allow users party innovation is vital. Companies should and the supporting ecosystem of innovation begin this process by evaluating their core communities to develop new product comple- capabilities to understand exactly where their ments. A robust technology and intellectual strengths and weaknesses lie in the context of property plan should also be in place to guide their functional and value chain activities. The decisions on managing the platform technol- decision to open up proprietary technology to ogy interfaces. At this stage, companies should weaken the opportunity for rivals to capture decide how much modularity is required in the value from the same technology only works if technology architecture in order to enhance the company’s strengths in other business areas the core platform technology’s ease of use and are sufficient to generate competitive advan- compatibility across multiple product genera- tage. This is a critical decision when consid- tions. Many of the semiconductor industry’s ering the use of open source technology to leading products are based on platforms with develop open platform business models.99 enhanced modularity built in. From a histori- cal perspective, Qualcomm’s integrated CDMA

37 A Deloitte Research Open Mobile report

Separating the leaders from the laggards: Selected case studies

O dig deeper into which semiconduc- of competitors. Using each element of the SCP Ttor companies are edging ahead in the framework, we explored the mobile semicon- mobile growth wars, our enterprise-focused ductor landscape in more depth. For example, research explored the tactics and strategies we employed Porter’s five forces framework used by leading semiconductor companies under the structure category to assess the gaining traction in new mobile technology elements that comprise Porter’s well-known markets. Our initial analysis utilized a struc- model101 (existing industry competitors, threat ture-conduct-performance (SCP) framework of new entrants, bargaining power of suppliers, (see figure 39), which is an enduring approach bargaining power of buyers/customers, and to analyzing the relationships between an threat of substitute products and services). industry’s structure and the influence it has on Following the performance element of the the conduct and performance of the compa- SCP framework, a preliminary revenue growth nies that compete within it.100 Using the SCP analysis identified seven major semiconduc- framework allowed for investigation of a firm’s tor companies that are leading and/or gaining performance (profitability) against the context traction in mobile technology-dominated mar- of its conduct or behavior (in this instance, pri- kets: Qualcomm, Samsung, Intel, Broadcom, marily innovation processes) within the struc- Nvidia, ARM, and TI. In-depth case studies ture of the industry and various elements such were then developed for each company to as barriers to entry and the number and size explore their core capabilities and common

Figure 39. Structure-conduct-performance (SCP) framework

Structure Conduct Performance

• Mobile semiconductor • Core competence analysis • Financial performance competitive landscape analysis analysis • SWOT analysis • Porter’s ﬁve forces analysis • Resource-based view analysis – Industry analysis • Platform leadership analysis – Firm-speciﬁc analysis • Open innovation analysis • SWOT analysis

Source: E. S. Mason, “Price and production policies of large scale enterprises,” American Economic Review Supplement 29, no.1 (1939); E. S. Mason, “The current status of the monopoly problem in the United States,” Harvard Law Review 62, no. 8 (1949): pp. 1,265-1,285. Graphic: Deloitte University Press | DUPress.com

38 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

approaches to growth and innovation. The academic theory rooted in the evolutionary following section outlines the case study economics field, specifically the resource-based approach and highlights selected examples view of the firm.103 The well-known core com- from each segment of the analysis. petence framework derived by C.K. Prahalad and Gary Hamel provided a means of evaluat- Case study methods overview ing and comparing each firm’s approach to 104 A case study analysis of each company establishing competitive advantage. helped explore commonalities in growth and The lens used for analyzing active elements the innovation tactics used by each firm. These of the open innovation and platform leader- commonalities provided a preliminary basis ship strategies used by each company initially for generalizing across companies to begin to comprised two analytical frameworks derived understand the basis of competitive advantage from the core elements of each strategy. In in the mobile semiconductor industry at a the context of open innovation, our analysis much finer level of tactical detail.102 A cross- framework focused on those processes for case study comparison then provided insight innovation that could be categorized under the into each individual company’s platform inside-out, outside-in, and hybrid approaches leadership and open innovation strategies for to open innovation described earlier. From our generating growth in mobile. The presence and initial findings, we broke these processes down use of platform leadership and open innova- into five separate tactics evident from second- tion strategies and tactics were then tentatively ary research on each company’s approach linked to financial performance. We also to innovation and value appropriation. The explored each firm’s core competencies using five tactics observed were in-licensing external technology, shared architectural control,

Figure 40. An integrated framework for studying open innovation and platform leadership capabilities

Platform sponsor/ In-licensing external provider Strategy technology

implementation Desig n Desig n Shared architectural Platform Open control

Modular technology interfaces leadership innovation Information Growth transparency Strategy Developmen t Complementors Developmen t Enabling third-party complements

Reconﬁguration Strategy of capabilities identiﬁcation Networks and Out-licensing communities Capabilities internal technology

Adoptio n and Adoptio n competences

Design – development – adoption

Resources/talent Processes Skills

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

39 A Deloitte Research Open Mobile report

information transparency, enabling third-party markets.109 In particular, the successful expan- complements, and out-licensing external tech- sion of its Snapdragon application processor nology. These tactics are also individually rec- platform has proved popular with a variety of ognized in academic open innovation literature leading mobile device vendors (both smart- as valid methods for pursuing an open innova- phones and tablets) such as Samsung, HTC, tion strategy.105 By synthesizing these elements LG, Nokia, and Sony. in this manner, we offer a new approach to However, it is beyond the immediate mobile evaluating democratized approaches to inno- device market where the company has most vation within the semiconductor sector. notably started to flex its platform and innova- To analyze platform leadership strategies, tion capability. With the firm’s commitment to we again derived a framework based on the research and development regularly exceeding previously described critical elements of plat- 20 percent of turnover over the past three years form leadership drawn from academic litera- (most recently 20.5 percent in 2012, amount- ture. For ease of categorization, we positioned ing to $3.9 billion),110 growth through product these elements under the headings of design, innovation is viewed as a priority. Indeed, a development, and adoption, which represent number of new initiatives have been estab- the broad phases of the innovation process lished, from augmented reality to femtocells, from concept to commercialization.106 Finally, which have helped the firm increase the diver- integrating both perspectives allowed for a sity of its technology portfolio. Such a sizeable method of analyzing both open innovation and outlay to R&D is rewarded via the appro- platform leadership strategies (see figure 40). priation of value through IP royalties, which continues to be a dominant revenue generator Selected case study highlights for the company and a core competence (see The following examples highlight some of figure 41). Indeed, a significant 33 percent the main findings from three of the compa- of revenue generated comes from exploiting 111 nies for which case studies were developed, I P. Securing competitive advantage through namely Qualcomm, Intel, and Broadcom.107 innovation continues to be a core growth tactic These insights were derived primarily from for the firm. Exploring some recent forays into extensive secondary research and supple- new mobile technology markets reveals a con- mented by interviews with select mobile sistent approach to platform innovation. semiconductor executives. Embracing the mHealth opportunity through platform innovation: The US health Qualcomm: From smartphones care sector is witnessing increased adoption of to mHealth and beyond mobile and wireless technology, with the global mobile health (mHealth) market forecast to In recent years, Qualcomm has taken major be worth $11.8 billion by 2018.112 Within this steps to expand its product and service offer- fast-growing embedded segment, the con- ings beyond the confines of the conventional sumer medical device market is expected to be semiconductor market. Traditionally a leader a leading connectivity growth opportunity for in wireless component technology, the firm has semiconductor companies. strong platform leadership capabilities ini- Key drivers of this expected growth are tially forged in the development of its CDMA recent health care reforms in the United States, wireless technology platform more than three such as the Affordable Care Act and the Health decades ago.108 Today, Qualcomm is a lead- Insurance Portability and Accountability Act, ing player across multiple mobile technology aimed at reducing health care costs, improv- markets and has strengthened its position in ing care quality, and increasing general public various mobile chip end markets such as the access to health care. These reforms, together applications processor and baseband processor with an aging population, are driving the need

40 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

to reduce the cost of treatment, thus fueling its subsidiary Qualcomm Life, the company demand for remote patient treatment and has launched the 2net platform, a cloud-based monitoring. Within this niche market, device platform designed to provide wireless con- OEMs are utilizing semiconductor processor nectivity and data management services for platforms to enable advanced functionality in chronic disease management and to improve areas such as diagnostics and therapy. This is the sharing of medical information.114 More helping fuel the US wireless health monitor- than 180 partners and collaborators have ing device industry, which has doubled in the currently integrated with or are considering past four years from a value of $7.1 billion integrating with the 2net platform. (2010) and is estimated to grow to $22.2 billion This is one example of Qualcomm’s by 2015.113 approach to becoming a platform leader in Qualcomm is one of the semiconductor mobile and wireless using elements of the companies making plays in this area. Through open innovation playbook—in this instance,

Figure 41. Qualcomm core competence analysis

Software products and services (for IP portfolio Chipsets example,wireless industry, End oducts transportation, government) p r

Wireless device software, asset Licensing/ Integrated tracking, mobile commerce and royalties circuits business services Business segments

Software products/ e Integrated circuits platforms and oducts Co r services p r

Creation and Venture capital and e Productization licensing of IP alliance strategy Co r competence

Innovation culture, technology integration capability, software solutions apabilities C ces R&D capital and engineering resources Resou r

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

41 A Deloitte Research Open Mobile report

Figure 42. Qualcomm Life: The 2net platform ecosystem

Asthamapolis, ERT, Sotera, Fitness/medical OS and software Android OS, Sensei, Macaw, devices application providers Nonin, Telcare, Ingram, GlobalLogic, CellTrust, and Zeo Inc., and others others

AirStrip Technologies, Service providers Industry and academic groups Connected Care Solutions, Qualcomm ANT+ Forum, Case Western, S3 Group, Sleep Health, and Continua Alliance others Life

Health care providers Carriers IDG, MD Revolution, AT&T (2net hub in US), Rady’s Children's Hospital and Orange (2net hub in Europe), Health Care, Tri-City Medical, Verizon, Sprint, T-Mobile, U.S. Preventive Medicine, Telenor, Vodafone Ximed

Source: Qualcomm Life, “2net platform,” http://www.qualcommlife.com/wireless-health; Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com network and community building (see figure and health informatics and analytics, all of 42). Already leading the mobile applications which will help accelerate the adoption of the processor market with the hugely successful 2net platform.116 Snapdragon chipset,115 which powers many of Open innovation and platform leadership today’s smartphones and tablets, the company tactics in use: In 2009, Qualcomm established has successfully leveraged a number of tactics the Qualcomm Innovation Center to promote designed to exploit collaborative innova- mobile open source software development tion. For example, the firm’s prominent use in conjunction with developing proprietary of acquisitions and in-licensing technology, Qualcomm technologies. Once again, acquir- most notably in the form of the ARM proces- ing external technology and establishing inno- sor architecture at the core of the Snapdragon vation networks—this time in the open source chipset, has allowed it to build a series of community—are a key element of the process. resilient technology platforms across multiple The Qualcomm Innovation Center has markets and engage third parties as part of a undertaken a series of successful initiatives in collaborative innovation strategy. Partnering areas such as smart home technology via the with firms to assist them in developing new AllJoyn project. This technology platform has a mobile software and hardware innovation P2P framework at its core that enables wireless allows Qualcomm to build networks and lead networking between devices and applications new ecosystems that complement and enhance through an open and shared architecture, and its proprietary core technologies. Other vehi- allows developers to create apps and services cles used to establish collaborative innovation that can leverage P2P connectivity within networks and allow co-development on shared the home.117 The firm leverages its developer product architectures include Qualcomm’s network in many similar open source projects. venture capital group, which acts as a conduit All of these are supported by the Innovation to bring in and spin out new ideas and prod- Center, which helps provide developers and ucts to the market. The Qualcomm Life Fund device vendors access to software devel- is part of this group. It is focused on investing oper kits (SDKs) and source code, making in companies active in areas such as chronic it easy to take advantage of next-generation disease management, remote diagnosis, Qualcomm technologies.

42 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Other open innovation tactics center on the emerging mobile market. To begin with, the firm’s strong capabilities in licensing intellec- process of forming, cultivating, and launching tual property, both in-licensing and out-licens- a complementor ecosystem is a critical step. In ing. With regard to in-licensing, acquisitions each instance, the firm positions itself at the are a common way to fill gaps in the technol- center of a nascent network of partner firms, ogy portfolio or to enter new markets; the many of which are from disparate industries Atheros deal in the area of wireless connectiv- that are adopting mobile technology at the ity is an example. Qualcomm has also in- core of new business models. This allows licensed a number of well-known technology Qualcomm to direct and grow the network platforms such as the ARM Cortex architecture around its particular core technology plat- platform and the Ensigma UCC broadcast, form. The core technology is often then used communication, and connectivity IP family as a building block around which innovative from Imagination Technologies. With regard new products and services are developed by to out-licensing, the firm has steadily built on the ecosystem partner firms and launched the success of its CDMA licensing program into emerging mobile and wireless markets. and has leveraged its venturing process, via the In each of the ecosystems, design, develop- group Qualcomm Ventures, to considerable ment, and adoption partnerships are evident, effect in emerging mobile technology develop- creating potential pathways to mobile growth ment (50 percent of investments are in soft- for Qualcomm. In the case of the Snapdragon ware development).118 platform, the complementor ecosystem (see Other notable successes in Qualcomm’s figure 43) is broadly made up of mobile device mobile platform leadership efforts are centered manufacturers, processor core technology on more traditional chip market offerings. partners (ARM), software developer partners, The Snapdragon family of ARM-based mobile technical standards bodies and institutions, OS application processor platforms and the Gobi providers, and finally Qualcomm’s own chipset cellular baseband platform, which are both reference design group. Together, these partner positioned to serve a wide range of mobile and networks coalesce around the Snapdragon wireless device markets, are notable examples. platform, with Qualcomm acting as the Each is currently the leading product in its par- platform sponsor and coordinating design, ticular end market. The Snapdragon processor development, and adoption relationships. is a successful application processor platform Doing so enables interfaces designed around technology in the smartphone, tablet, and PC core areas of the platform to act as channels sectors.119 Meanwhile, the Gobi platform has for third-party complementors to support the emerged as a prominent modem chipset in the platform and often facilitates in-licensing and 3G/4G modem market, in which Qualcomm is out-licensing deals to generate and capture a leading supplier. The chipset, which currently value from intellectual property. 121 powers over 100 Internet of Thingsdevices, With the Gobi platform, Qualcomm has is being leveraged by the company as a gate- once more developed a robust ecosystem to way platform across a number of emerging support, adopt, and lead the commercializa- embedded wireless connectivity markets that tion of the modem chipset platform (see figure utilize machine-to-machine technologies. This 44). With Qualcomm, a leading provider of includes the smart energy sector, the industrial multi-mode 3G and 4G modems that integrate automation market, and the wireless automo- voice, data, Bluetooth, Wi-Fi, location, and tive technology market.120 security features, the Gobi chipset platform In these examples of Qualcomm’s mobile offers one of the most complete solutions for and wireless platform innovation strategy, wireless connectivity in the market. As a result, certain key elements are prominent in help- Gobi modems can be found powering a broad ing propel the firm’s growth play in each range of notebooks, smartphones, tablets,

43 A Deloitte Research Open Mobile report

Figure 43. Qualcomm Snapdragon platform ecosystem

Offers pre-engineered Qualcomm reference Handset device 50+ manufacturers: Samsung, designs manufacturers solutions and tools to OEMs Nokia, HTC, LG, etc.

Windows RT, Windows Phone, OS providers Processor core ARM v7 Instruction set Blackberry, brewMP, Android Qualcomm Snapdragon MAP

3GPP, 3GPP2 Standard bodies Developer, tools, and support SDKs & APIs, sample code, guides & tutorials, developer forums, blogs, discovery, software tools, Android SDK, hardware development boards

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

Figure 44. Qualcomm Gobi platform ecosystem

Huawei Module suppliers OS providers NOVATEL Wireless Windows, Chrome OS, OPTION Wireless Technologies Android, Linux Sierra Wireless ZTE

Qualcomm Gobi ecosystem

3GPP, 3GPP2 Standard bodies Developer, tools, and support Qualcomm Computing Mobile Broadband ( QCMB API) provides API to developers to connect, locate, and manage 3G/4G devices; access to developer forums, and Gobi API SDK 3.0 Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

44 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

data devices, and connectivity devices across companies and data service providers), infor- an expanding mobile device and embedded matics companies, OS providers, software wireless connectivity market. The ecosystem developers, network carriers, and industry and to support the development of this platform academic groups. Qualcomm, as the sponsor can again be broken down into three distinct and provider of the platform, enables third- design, development, and adoption phases. party complementors to support and develop As the acting platform sponsor and provider the 2net platform by distributing platform of the core Gobi platform technology, the SDKs and APIs that provide access to a stream company coordinates development and com- of biometric data across multiple devices, radio mercialization activities using a broad range technologies, and software OS platforms. This of open interfaces to link to module suppli- allows software partners to tap into the 2net ers such as Huawei and Novatel; OS provid- medical data stream and enable innovative ers such as Android, Windows, and Linux; applications to be developed, with the goal of standards bodies; and, of course, software further stimulating the use and adoption of developer communities. Qualcomm’s Gobi the 2net platform. Qualcomm predominantly application programming interface (API) and appropriates value from the platform via a software development kit (SDK)provide a licensing and subscription model wherein a common software interface that allows devel- stable and secure network is provided for part- opers to connect and develop software for a ners and complementors, facilitating biometric broad range of 3G and 4G mobile and wireless data aggregation and analytical services.123 devices. Recently, an uptick in wireless connectivity opportunities has seen Qualcomm’s Intel: Mobile becomes a priority M2M group reference hardware designs and The world’s largest semiconductor company respective SDKs to developers focus on M2M has, until recently, chosen primarily to consoli- applications for Gobi-powered devices in areas date and grow its market leadership position such as telematics, smart metering, healthcare, in the PC and related server and data center 122 retail, and asset tracking. markets. However, over the past two years, the Similar features are also seen in the case firm has steadily focused on making an impact of the 2net platform described earlier. With in emerging mobile and wireless connectivity the 2net platform, Qualcomm has designed markets. In 2012, with R&D spend at $10.1 an open, cloud-based service platform that billion, it announced a series of R&D system- enables end-to-end wireless connectiv- on-chip (SoC) investments for the smartphone, ity facilitating the storage, encryption, and tablet, and ultrabook mobile device catego- transmission of data from medical devices ries, as well as a growing focus on the wireless to a centralized hub (the 2net hub, which is embedded systems markets.124 To comple- a stand-alone FDA-listed device that enables ment this aggressive move into mobile, Intel a plug-and-play connectivity gateway). The continues to develop its traditionally strong platform also provides data management and manufacturing capabilities, with its technology managed services for chronic disease manage- roadmap pushing the development of 450-mm ment (such as remote monitoring services) that diameter wafers and 10-nm nodes beyond can be accessed by a range of partners. These 2015.125 Figure 45 provides an overview of partners form the core of the 2net ecosystem the company’s core competences as it begins and span the wireless health care value chain. to change direction and focus on emerging Network partners include wireless medical mobile growth opportunities. device vendors and manufacturers, health care Open innovation at Intel: Broadly speak- providers, pharmaceutical companies, health ing, Intel has focused its innovation activi- care service providers (such as insurance ties around three core pillars of computing:

45 A Deloitte Research Open Mobile report

energy-efficient performance, security, and specific processes built around develop- connectivity.126 Again, using the design, ing dynamic ecosystems to support broader development, and adoption lens for analysis technology development. These processes and linking back to the critical elements of often feed into the company’s famed “tick- the open innovation playbook, it is clear that tock” model of chip manufacturing process open innovation has a role in many business technology development.127 The Intel Labs joint units across the firm in its approach to tech- pathfinding process is a good example of this nology and manufacturing platform design. approach, which seeks to build new ways of Prominent in this regard is the company’s R&D collaborating and sharing resources between group, Intel Labs, which has implemented research labs and business partners; the goal is

Figure 45. Intel core competence analysis

• Pentium, core • Xeon server • SSDs for servers • Mobile PC processors, processor and and mobile and device OS chipsets, chipsets embedded • Appstore motherboards • Data center devices platform

oducts • Ethernet networking • Embedded • Security network chips and NICs control software interface cards processors and

End p r • Data center SSD (NICs) chipsets • Location-based storage services

Mobile and PC and Software and Data center embedded notebook services device Business segments

e PCI (Ethernet) SSD (NAND ﬂash) Processors

oducts controllers memory controllers Co r p r

Memory controller Processor interface Node design and e design and memory design process technology

Co r packaging expertise competence

Silicon process technology manufacturing, architecture design, and technology platform development apabilities C

ces R&D capital, alliance strategy, manufacturing technology, assembly and test plants, Intel capital, and investments Resou r

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

46 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

to span the “valley of death that lies between over 200 companies go public, while more than research and product adoption,” accord- 300 have been acquired or have participated ing to Martin Curley, director of Intel Labs in mergers. A steady flow of out-licensing in Europe.128 Intel Labs views this process as technology deals is another commercialization part of its overall drive toward implementing channel leveraged by Intel Capital, which has a its Open Innovation 2.0 strategy, which aims number of dedicated investment funds to draw to integrate the traditional open innovation from. These include an ultrabook fund, the elements of partnering and networking with AppUp mobile software developer fund, and a more comprehensive adoption of ecosystem regional and country-related funds such as the development that includes the use of social Brazil technology fund and the India technol- media technologies, co-creation platforms, and ogy fund.130 Aligned with the AppUp fund is user innovation communities to broaden the the AppUp developer program, which assists impact of open innovation across the company. mobile software and application developers by Other aspects of the company’s active distributing SDKs and APIs to enable apps to open innovation playbook include substantial be built on Intel’s x86 architecture across vari- in-licensing of external technology through ous device and OS platforms.131 Collaborations patent acquisition, notably in the areas of are wide and varied and include partners in LTE and home networking, as well as via the the area of smartphones such as device OEM acquisition of established technology providers Lenovo and network carrier Orange, both of such as Infineon’s wireless solutions busi- which worked with Intel’s Medfield-powered ness and embedded software provider Wind form factor reference design (FFRD) to pro- River Systems. In the area of co-creation, duce smartphone devices. The collaboration Intel collaborates with a number of partner with Orange in particular is thought to be firms, including Toyota on wireless connectiv- unique, as Intel is the first chipmaker to sell an ity in automotive driver assistance systems FFRD directly to a carrier rather than through and General Electric in the area of mHealth. an OEM.132 The approach is often to develop common Other notable aspects of this Atom-based technology platform assets and share plat- ecosystem include strong network ties to form architecture control with collaborators. developer communities through funding Information transparency is also important in mechanisms (see figure 46). Links to the Intel the collaborative process; in some instances, AppUp center by way of Intel’s online AppUp it links to the company’s involvement in open stores—from app development through com- source software initiatives. One such example mercialization—are also apparent. A high level is the Tizen open source project housed under of information transparency, often enabled by the Linux Foundation, which is a project the use of open source software code, enables focused on developing an open source mobile third-party complementors from the software OS platform. The development of this initiative community to co-create directly with the com- is led by a technical steering group composed pany on and around the Atom platform. This of Samsung and Intel. The effort has led to the has enabled Intel to make inroads into areas distribution of multiple open source develop- such as mobile payments by collaborating with ment licenses within and beyond the open the likes of Visa and its payWave133 technol- source mobile software community.129 ogy on software security and the use of the Other areas of the company that utilize Atom-powered FFRD. open innovation processes include Intel Platform leadership tactics in mobile and Capital, the firm’s venture capital group, which wireless: Intel’s famed approach to platform has a strong track record of acquiring, funding, leadership in the PC and server markets is and commercializing Intel’s technology-based enabling the company to attempt to rapidly ventures. Since 1991, Intel Capital has helped catch up in emerging mobile growth markets

47 A Deloitte Research Open Mobile report

Figure 46. Intel Atom processor developer ecosystem

Medﬁeld FFRD Intel Form Factor Reference Developer 29,000+ enrolled software Design (FFRD)* community developer network with >4,600 apps and growing; 17+ AppUp powered stores; Intel AppUp SDK distribution

Intel capital AppUp Android, Windows OS, OS providers $100 million fund invests in MeeGo, Tizen fund Intel Atom software tools and services, app processor development companies for the $ PC and mobile ecosystem

Software and Multimedia Visa and McAfee GPU (Imagination Technologies) services solutions

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

Figure 47. Summary of the Intel Atom processor end markets

Handset and tablets Microservers Embedded Consumers

• Smartphones: ZTE, • 10+ design wins: • Automotive • Smart TV Lava (India), Lenovo, – Dell, NEC, Hitachi, • Health care Motorola, and Orange Quanta Computer, • Retail • Tablets: 20 design wins HP (Project with 10 OEMs Moonshot), Tyan, Supermicro

Source: David Wong, Amit Chanda, and Parker Paulin, INTC: Atom Mini Primer, Wells Fargo Securities, June 17, 2012; Doug Freedman and Earl Hege, Intel Corporation: Low sentiment ahead of gross margin expansion, Mobile soon to be leading edge, RBC Capital Markets, May 6, 2013; Intel Investor Meeting 2012 Presentations, Intel, May 2012, http://www.intc.com/events.cfm.

Graphic: Deloitte University Press | DUPress.com and take on archrival ARM, the dominant where analysts predict that Intel could generate leader in mobile chip design.134 Leading the revenues of anywhere between $700 million to charge is the company’s aggressive develop- $1 billion with smartphones and $300 mil- ment of the Atom SoC platform for a variety of lion to $600 million with tablets in the short device and embedded markets. With this par- to medium term.136 Much of this projected ticular processor platform, Intel initially tar- revenue will likely depend on the success of the geted the netbook market, releasing multiple recent Medfield and Clover Trail processors, versions of the architecture for various product which are based on 32-nm architectures and segments and generating annual revenue in promise gains in lowering power consump- excess of $1 billion from 2009 through 2011.135 tion in the smartphone and tablet markets. As sales have climbed, the company is now Plans for successors to both SoCs were also targeting the broader mobile landscape with a announced recently. The next versions of the focus on the smartphone and tablet markets, Atom processor, code named Merrifield and

48 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

adopting wireless technology across a range Figure 48. Automotive infotainment system revenue forecast, global, 2011–2016 of consumer and enterprise products and services. With in-vehicle electronics growing Revenue ($ billions) in complexity and demand, two categories for 50 semiconductor growth currently stand out: IVI and telematics/connectivity systems.140 By far 40 the biggest automotive connectivity growth 41.2 channel, the IVI market is estimated to reach 38.45 36.72 141 35.07 $41 billion by 2016 (see figure 48). Propelled 30 32.5 33.5 by a surge in the integration of infotainment and wireless connectivity solutions that will 20 power features such as next-generation navigation systems, advanced premium audio, fuel efficiency, and enhanced safety functionality, 10 this section of the market is expected to offer chipmakers opportunities to significantly 0 expand their embedded market footprint. 2011 2012E 2013E 2014E 2015E 2016E Similarly, chip companies are finding strong growth opportunities in the telematics cat- Source: Luca De Ambroggi, Automotive infotainment electronics market set for growth in 2012, iSuppli, February 23, 2012. egory, where connectivity systems to assist

Graphic: Deloitte University Press | DUPress.com vehicle diagnostics for maintenance, fleet vehicle management, and roadside assistance are converging with advanced driver insur- Bay Trail, will make their debuts in smart- ance systems in products such as pay-as- phones and tablets, respectively, 2014 onward. you-go driver insurance and driver-based Both new processors, which are based on the insurance mapping. new Silvermont 22-nm architecture, promise Intel, which is using its Atom processor up to 50 percent improvement in performance, to develop next-generation IVI platforms, 137 enhanced battery life, and LTE connectivity. is enabling co-development, partnering Broadening adoption beyond the Windows 8 with companies such as Hyundai Motor OS smartphone and tablet platform is con- Corporation, Kia Motors, Toyota, and sidered the key challenge as the company Nissan.142 The company’s strategy is to grow looks to expand its mobile device OS foot- its leading position at the core of an ecosystem print, with Google’s Android platform being a that incorporates multimedia and voice tech- 138 prime target. nology companies, IVI system manufacturers, Regarding embedded market opportunities, mobile software developers, and car manufac- Intel is also positioning the Atom processor to turers (see figure 49).143 The value proposition address market needs in the areas of in-vehicle surrounding the Atom platform—lower power infotainment (IVI) and M2M (see figure 47), consumption, 3G and Bluetooth wireless which, according to analyst estimates, could capabilities, and advanced video streaming, net the company revenues in excess of $1 bil- navigation, and gaming capabilities—makes it 139 lion per year over the next few years. attractive for partner firms to use at the core Capitalizing on mobile and wireless of their own IVI platform technologies and growth in the automotive and health care thereby become complementor firms contrib- industries: The automotive industry has made uting to the core platform’s success. great strides over the last three years in rapidly

49 A Deloitte Research Open Mobile report

Figure 49. Intel’s automotive IVI ecosystem

Multimedia and voice technologies IVI system manufacturers C&S Technology, Nuance Communications, Congatec, GENIVI Harman International, Alliance members, Intel Bluestar Technology, Embedded and Shenzhen Hazen Communications Alliance members

Car manufacturers Software

Hyundai, Kia Motors, Toyota, Denso, Nissan, HawTai Motor

Microsoft (Windows), Linux Foundation (Moblin, MeeGo), Samsung (Tizen), GENIVI Alliance, Congatec, Red Flag Software, Green Hills Software (real-time operating system-based software)

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

Building a presence in mHealth: Intel’s Broadcom: Expanding the involvement in the emerging mHealth sec- connectivity portfolio tor follows a similar strategy to its play in the Broadcom Corporation is a leading fabless embedded automotive markets. Once again, semiconductor company with strong market the company is steadily developing and orches- positions across the mobile and wireless, infra- trating networks of ecosystems to support structure, and broadband communications its core Atom processor in various emerg- sectors. Traditionally, the company has lever- ing embedded wireless health care markets. aged its significant R&D capabilities to remain Partnerships with a diverse variety of platform competitive in established and emerging complementor firms—including OEM device markets. In 2012, its R&D spend was approxi- vendors, OS developers, and service provid- mately $2.3 billion or 29 percent of revenue, ers—support the development of wireless busi- the third-largest overall in semiconductor ness model innovation in areas such as health R&D spending.146 An outcome of this com- care informatics, mobile medical devices, and mitment to innovation is the firm’s holdings 144 health care data gateways (see figure 50). In and IP portfolio, which is considered one of particular, the Atom processor is used by hard- the strongest in the industry by organizations ware partners to address many of the design such as the Patent Board and IEEE. Indeed, the challenges inherent in developing secure sys- company was ranked second after Samsung tems that increase device interoperability and in the Patent Board’s 2012 semiconductor support an upgrade path for the future.145

50 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Figure 50. Intel mobile and wireless health care ecosystem JAOtech, Kontron, Advantec, Avalue Technology, SoloHelath

Health care Qualcomm (baseband), TI (radio, Centre Hospitalier de la Région power management), NXP Wireless and chip device OEMs Hospitals and health services d'Annecy hospital (Latin America), Semiconductors (NFC), Atmel Haoyisheng (China), (touch screen control), RF Micro Kshema (India), Medicina a Devices (power management), Distancia (Latin America) Imagination Technologies (graphics), CSR (GPS) Medical technology and Device packaging Intel device companies (Processors, security software, wired Lidco (cardiac sensor systems), GE, Motion Computing connectivity, remote SuperSonic Imagine (ultrasound management technology) systems),Radisys (medical imaging) Health care Software and informatics OS providers Microsoft (Windows 7), services Linux Foundation (Moblin), Medeanalytic, Omnicell Samsung (Tizen) Medical data and informatics services Apelon, IGI Health, Customers Initiate Systems, GE, EMC

Partners

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

innovator rankings, based on the quality, on its traditional R&D capabilities across the strength, and size of its patent portfolio.147 distinct design, development, and adoption Unsurprisingly, as consumer and enter- phases of the innovation process. prise demand grows for mobile products and Several elements of this strategy stand services, the company is increasingly focus- out. In the design stage of the product inno- ing on developing its wireless product offer- vation process, Broadcom is known for its ings, with current research areas emphasizing significant commitment to internal develop- LTE and wireless connectivity SoC solutions. ment (the firm employs a large number of Figure 51 highlights the core competences PhD-level engineers) balanced by an aggres- that the firm is developing to ensure that sive approach to mergers and acquisitions mobile and wireless growth in emerging end that allows it to acquire niche companies and markets is at the center of its mobile platform technologies, boosting its inflow of knowledge innovation strategy. in the process. In line with the other companies profiled, Recently, acquisitions in the wireless Broadcom is steadily establishing mobile and connectivity, mobile software, and the net- wireless market positions via platforms and work carrier sectors have accelerated its ecosystems in sectors where mobile and wire- push into mobile and wireless. Notable deals less technology adoption is rising, such as the include Beceem in the area of LTE, NetLogic automotive and consumer electronics sectors. Microsystems in multi-core embedded pro- The firm leads the semiconductor wireless cessors, and BroadLight in optical network connectivity end market.148 Supporting this processors. A concentrated push to in-license position is an increasingly open approach to wireless technology is seen as an important innovation that allows the company to build

51 A Deloitte Research Open Mobile report

mechanism for establishing pathways to future architectural control of product development mobile growth.149 platforms and boosting information transpar- Broadcom also focuses on establishing ency to aid knowledge sharing are hallmarks co-creation partnerships with third-party of the company’s approach to innovation in complementor firms, sharing access to its intel- wireless connectivity markets. For example, lectual property with the likes of the applica- the firm actively participates in open source tion developer community and government software networks (it is a founding member agencies under various licensing agreements.150 of the LiMo foundation), providing APIs and While out-licensing its strong IP portfolio SDKs to the Android development community. remains a major revenue mechanism, many of Through this activity, the firm aims to extend these agreements are royalty-free and designed its chip footprint in emerging mobile growth to stimulate the use of mobile technology for markets such as near field communications the public good in areas such as public health (NFC), where the firm’s NFC software stack and emergency response applications. Sharing can be found embedded in the Android OS

Figure 51. Broadcom core competence analysis

Home routers, Modem and 3G/4G wireless

oducts Wi-Fi, residential infrastructure and wireless smartphones gateways access points, LAN

End p r ,

Mobile and Broadband Infrastructure and wireless communications networking Business segments

e System-on-chip Ethernet/cable oducts Co r platforms p r

Acquisition of IP/IP Reference platform e exploitation development Co r competence

Technology integration, system on chip design, base technology development M&A strategy apabilities C ces R&D capital, engineering resources Resou r

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

52 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

platform. Broadcom also targets the wire- As the LTE market continues to expand, less automotive markets, where it is a leading opportunities for the company to leverage member of the OpenSIG alliance—an industry its experience across the baseband, GPS, group formed to collaborate on commercial- Wi-Fi/Bluetooth, and application processor izing Ethernet-based connectivity solutions in markets continue to improve. Developing the automotive sector. Expanding its role in the robust combo chip platform solutions in these software developer ecosystem is a key objec- markets should provide a means for securing tive for Broadcom as it looks to emulate the growth in a number of new mobile technology success of competitor firms in this area such markets (see figure 52). as Qualcomm.151 An important element in Broadcom’s wire- Platform leadership tactics in emerging less connectivity strategy is its goal of strength- wireless connectivity markets: Broadcom’s ening and expanding its presence in software prime objective in the mobile and wireless developer networks as a pathway to technology markets is to increase chipset functionality adoption. To do this, the company is seeking and steadily expand its portfolio of connectiv- to sponsor and orchestrate new ecosystems ity solutions, especially in the area of combo built around its core chip software technology chips/SoCs, which are used in smartphones that will allow the accelerated development and tablets.152 Shifting its R&D efforts to focus of future SoC products.154 Target complemen- on developing integrated baseband and appli- tor partners include OS providers and spon- cation processors 2010 onward, has allowed the sors to aid in developing SDKs that will likely firm to gradually extend its reach with major attract application developers to work with device vendors such as Apple, Samsung, and Broadcom technology. The company believes Nokia, all of which use Broadcom connectivity that enhancing software development around chipsets in a variety of smartphone and tablet core chip technology platforms will provide devices. Analysts estimate that Broadcom cur- better integration with hardware solutions rently has a 70 percent share in the smartphone and stronger collaboration opportunities and tablet connectivity chipset market.153 with mobile and consumer electronic device

Figure 52. Broadcom connectivity portfolio

Broadcom

Handset and tablets PCs and notebooks Consumer electronics Automotive

• Wi-Fi + BT + Cellular + • Wi-Fi + BT + Cellular + • Wi-Fi + BT + Cellular • Wi-Fi + BT + Cellular + GPS + NFC GPS + NFC (gaming consoles) + GPS GPS + NFC (gaming • BroadR-Reach (Ethernet) consoles)

• Apple, Samsung, • Apple MacBook • Gaming: Nintendo Wii • Hyundai Motors BlackBerry, HTC, Nokia, Pro/Air, ASUS, HP, • Set-top boxes: Tivo, (Ethernet) Nexus 4/10/7, LG, TCL Lenovo, Acer, Fujitsu, Motorola GFIVE, T-Mobile, Dell, and others Vodafone, Orange, ZTE, • Routers: Huawei, Amazon D-Link, Netgear, Belkin, Buffalo

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

53 A Deloitte Research Open Mobile report

Figure 53. Growth projections for NFC-enabled devices, 2011–2016

Number of NFC-enabled devices (millions)

2011 40

CAGR: 2016 8.5 800 + 82%

0 100 200 300 400 500 600 700 800 900

Source: Mohamed Awad, NFC ready for mainstream adoption with new combo chip, Broadcom, December 11, 2012; ABI Research, August 28, 2012.

Graphic: Deloitte University Press | DUPress.com

OEMs. The firm’s reference design program is a smartphone NFC technology will stimu- prominent element of this strategy. In this pro- late consumer adoption of mobile payment gram, Broadcom provides reference platforms services and products, with a predicted global consisting of layers of software applications transaction value of $38 billion by 2016.156 designed around its integrated circuitry, which To act on these opportunities, Broadcom enables application developers to optimize app acquired Innovision Research & Technology development on Broadcom-powered devices. Plc, an NFC technology company, in 2010 to Making moves with NFC and mobile pay- enhance its NFC capabilities. The firm ulti- ments: One area in particular where Broadcom mately aims to develop secure NFC-enabled is using software platform leadership tactics application processors and generate untapped to establish a competitive advantage in wire- revenue in combo chip solutions (Wi-Fi + less connectivity is NFC technology. Analysts LTE + NFC). At the core of this strategy is the predict that the NFC market is set to grow at a goal of reducing system costs associated with CAGR of 82 percent from 2011 through 2016, NFC technology to the point where it becomes with a predicted 800 million NFC-enabled attractive to integrate NFC into everyday devices shipped by 2016 (see figure 53). smartphones that are used to facilitate mobile More than 50 percent of these devices will be payment transactions—spurring consumer smartphones, and 25 percent will be consumer adoption in the process. At the same time, electronic devices.155 Large-scale adoption of the firm intends to cultivate the use of NFC NFC chip technology will likely depend on the in other applications where the technology success of mobile payment technology, which could be useful and quickly gain commercial is yet to be fully adopted in the developed mar- momentum (see figure 54). Such applications kets. This is mainly because economic com- include targeted mobile advertising, interactive plexities in the payment ecosystem are slowing gaming devices, ticketing and transportation down infrastructure development as various access technology, and wireless infrastructure players across different industries struggle technology. An important element of this to find common ground in value appropria- strategy will be to focus on targeting products tion and distribution. Nevertheless, analysts and services on and around the Android OS remain bullish that the estimated uptick in platform, which represents the largest market

54 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Figure 54. Broadcom NFC chipset end markets

Broadcom NFC

Handset and tablets PCs and notebooks Consumer electronics

• Android devices: Google Nexus • Dell E series laptop • Bluetooth headsets 4, Google Nexus 10, Google • Gaming consoles: Nintendo’s Nexus 7, Samsung Galaxy S3 Wii U • Routers

Source: Deloitte analysis; Broadcom, 2012.

Graphic: Deloitte University Press | DUPress.com

for NFC adoption: Approximately 1 million have focused mainly on the development of NFC-enabled Android devices are activated Broadcom’s own NFC software stack, which each week.157 is widely used across many Android wireless In terms of specific platform leadership connectivity solutions; the solution has the tactics aimed at creating and capturing value backing of Google, which uses the stack in a with NFC chip technologies, Broadcom is number of its Nexus smartphones. Broadcom’s steadily building and participating in a series stack design affords partners a high level of of NFC development and commercializa- flexibility in terms of OEM device and appli- tion ecosystems and partner networks. Chief cation developer adoption. Because of this, a among these is the company’s role as an NFC number of diverse routes to commercialization chip technology platform sponsor in multiple have emerged from the company’s NFC eco- Android ecosystems. To date, these activities systems. These include mobile wallet partners

Figure 55. Broadcom NFC ecosystem

ISIS, VISA, Google Wallet, OEM wallets and banks OEMS Samsung, LG, Google MasterCard, American Express

Standards and App providers Mobeewave, Identive, compliance NFC Forum, EMV Co, Fime Secure Key Broadcom NFC

Operating systems Secure elements Android, Windows, Linux Oberthur Technologies, ST Electronics, Gemalto, Inﬁneon Technologies

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

55 A Deloitte Research Open Mobile report

in the ISIS mobile payments ecosystem, mobile studied. Our analysis provides several themes device OEMs, software security partners, OS for discussion and guidance.159 partners, and, of course, application providers (see figure 55). Part of Broadcom’s NFC Mapping the mobile and strategy is to orchestrate product development wireless growth opportunities relationships with device OEMs. The company All seven companies studied have devel- can then use software interfaces to attract oped significant plays in emerging mobile and complementor firms that can build on the wireless connectivity markets. Each company software program and move toward integrating is notable for pursuing mobile business model Broadcom chip technology into their products. growth through the use of platform leadership By encouraging the incorporation of its own and open innovation strategies. These include reference platforms, which include system- making forays into the mHealth and wire- level software suites and application layer soft- less health care markets, mobile commerce ware, into OEM prototype devices, Broadcom and retail, wireless connectivity systems in can collaborate with OEM complementor firms the automotive sector, consumer electronics from the early stages of design to a product’s and smart home technology, and smart grid 158 final release to the market. solutions in the energy market. Within each of these segments, each company is developing Summary of the case new integrated chip offerings to power mobile study analysis device and wireless connectivity solutions. Moreover, several are developing new mobile A number of common elements can be technology products and solutions beyond identified in the strategies being employed their traditional chip component products. for mobile growth in each of the companies Our mobile end market analysis highlights the forecasted trends likely to impact these sectors

Figure 56. Ubiquitous connectivity: Emerging wireless growth markets for semiconductor companies

Connected car mHealth and mPayments Smart energy Smart home

Global mHealth market $41.2 billion IVI market revenue forecast $11.8 billion US smart grid market forecast $72 billion market opportunity forecast by 2018 $42.8 billion in 2014 opportunity forecast by 2016 Global mPayment market by 2017 forecast to reach $617 billion in transaction value by 2016

Smart car and telematics Smart utilities and mHealth ATM/POS smart grid Security and home energy management

Retail and digital Aftermarket telematics signage Remote monitoring and control

Tracking and location Smart appliances and EV charging stations Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

56 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

as new mobile growth opportunities in the 4G these elements constitute the core elements of a era take hold. Figure 56 summarizes some of robust platform leadership strategy. the strongest wireless growth market oppor- Taking the three highlighted case studies as tunities in which leading chip companies are an example, Qualcomm, Intel, and Broadcom becoming active. are each pursuing a variety of growth strategies in emerging mobile markets, many of which Developing what it takes to are beyond their traditional chip markets. compete in mobile technology Qualcomm’s play in the emerging wireless Our analysis shows that each case study health care sector is a good example of the firm company has a distinct set of skills, processes, leveraging its competences and capabilities in resources, and organizational capabilities that, traditional areas of strength—such as platform when integrated and deployed, enable them development, technology acquisition, in- and to create competitive advantage in mobile out-licensing, venturing, and ecosystem devel- technology markets. Companies such as opment (particularly in software development Qualcomm, Intel, and Broadcom have a strong communities)—to generate and capture value overall focus on product development and in a relatively new market (via its Qualcomm innovation, which informs their technology Life initiative). All of these tactics are also expertise and development. Indeed, from a present in Qualcomm’s efforts to propel the resource-based perspective, all of the compa- Snapdragon and Gobi chipset platforms to nies we analyzed share common competences leading positions in the mobile device and that are core to their product and service inno- wireless connectivity markets. vation goals (see figure 57). These mainly fall Intel is using similar approaches to ramp under the conduct category of the SCP strategy up its focus on emerging mobile opportunities. framework used to assess behaviors that gener- Long considered a skilled exponent of platform ate and capture value via superior performance leadership in the PC markets, the company in the market. is rapidly exporting its skills and knowledge Our analysis also points toward tactical to mobile growth platforms as it expands its commonalities across the studied companies’ product footprint in a variety of connectivity mobile growth strategies. In particular, com- segments such as automotive and health care. mon tactics in the three categories of open Equally interesting is Intel’s renewed com- innovation (outside-in processes, inside-out mitment to open innovation: With initiatives processes, and hybrid processes) are notice- such as Open Innovation 2.0, Intel is pursuing able in the various design, development, and what the firm calls joint pathfinding—a means adoption phases of each firm’s mobile technol- of expanding its collaborative capabilities by ogy growth strategy. Similarly, commonali- introducing a variety of open innovation and ties in the companies’ approaches to platform platform leadership tactics in new and emerg- leadership are evident in several areas. These ing R&D markets. Once again, we note the include efforts to develop (and sponsor the company’s focus on activities such as corporate development of) core mobile technology, venturing to develop new ecosystems in com- build networks of complementor firms and munities at the heart of the mobile landscape, orchestrate the resulting platform ecosystem, such as software development. Doing so and equip product technologies with open and enables Intel to forge new channels for collabo- accessible interfaces to stimulate development. ration, especially in the area of open source Similar approaches to IP management in the software, and share architectural control at the market adoption phase are also notable. All of heart of new mobile platform development. This, coupled with a continued focus on technology acquisition to facilitate in-licensing,

57 A Deloitte Research Open Mobile report

Figure 57. Case study core competence analysis summary

Company Core competence Core products End products

• Creation of IP Integrated circuits • IP portfolio Qualcomm • Venture funding • Chipsets Software products and • SoC integration • Software products and services services

Memory and logic • Process innovation • Memory, ﬂash and SSD, system logic Samsung • Product design skills • Digital appliances Storage devices • Display technology • Handset and network • LCD, tablets, notebooks, LCD Display

• Acquisition of IP System on chip Broadcom • Reference platform • Home routers, Wi-Fi, smartphones development Ethernet/cable • Modem and residential gateways • 3G/4G and WLAN infra

Graphics processors • GeForce • Visual computing Nvidia • Quadro • Parallel computing Mobile app processors • Tesla • Tegra Parallel computing • NVS platform

Analog processors Analog semiconductors, power mgmt. • Signal processing • Texas Instruments DSP, microcontrollers • Integration • Application processors • OMAP, connectivity chipsets

• Pentium and core processors, • Processor interface PCI (Ethernet) controllers Motherboards, ethernet NICs • Node design and • Xeon server processors, data center process design networking chipsets, data center • Manufacturing SSDs Intel Processors capability • SSDs for servers, mobile, embedded • Memory controller devices, embedded control design and memory processors and chipsets packaging expertise SSD (NAND ﬂash) memory controllers

• Classic and cortex processor IP and SecurCore processor IP RISC instruction set • Mali GPU core IP • Memory controller IP, system • Power controller IP, debugging kit IP, management ARM peripheral interface IP • Manufacturing Chip manufacturing • Logic IP, embedded IP, processor blueprints interface IP, processor optimization IP for SoC implementation

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

58 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

allows the company to fund collaboration on software community—a powerful example of new business model innovation with a diverse using co-creation strategies as a means of new set of ecosystem partners. platform development. This strategy, along Broadcom, too, is increasingly focused on with an increased emphasis on sharing archi- using a combination of platform leadership tectural control with developers and promot- and open innovation tactics to gain footholds ing collaboration (via the distribution of SDKs in emerging mobile technology markets such and APIs integrated with core Broadcom chip as NFC. Forming ecosystems and partner net- technology), has allowed the firm to pursue works in open source communities, particu- wireless opportunities previously beyond its larly those that serve the Android platform, has traditional market focus.

Figure 58. Summary of open innovation and platform leadership tactics of select semiconductor ﬁrms

Semiconductor ﬁrms: Qualcomm, Samsung, NVIDIA, TI, Intel, ARM , Broadcom

In-licensing Enabling third-party Shared architectural Information Out-licensing external technology complements control transparency internal technology

Product/technology Hardware Joint development of Use of open source Licensing of IP acquisition development boards product/technology technology Patent cross-licensing Technology licensing Developer tools, SDKs, Open source Developer SDKs and and software communities APIs Patent acquisition Collaboration/distribution Open platform with carriers, OEMs and interfaces others Co-development hardware reference design Access to open source communities

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

allowed the company to grow its links to the

59 A Deloitte Research Open Mobile report

Toward a new taxonomy for open innovation and platform leadership

HIS research report serves two functions. observed to be dominant in each of the mobile TFirst, it provides a detailed overview of the semiconductor case studies we developed. fast-evolving mobile semiconductor competi- Focusing in particular on the “how to’s” tive landscape, highlighting the emerging end in open innovation, our analysis yields find- markets that are likely to provide substantial ings that could provide the basis for a new growth opportunities in the immediate three- taxonomy for open innovation.160 Drawing to five-year time frame. Secondly, it sheds light on the cross-case comparison data to identify on some of the leading strategies being used elements used in each of the broader open by semiconductor companies pursuing mobile innovation process categories (outside-in, business model innovation in developing inside-out, and hybrid), tentative conclusions mobile and wireless connectivity markets. can be drawn about the core tactics being used The findings have several implications for to shape a powerful open innovation capability firms seeking to cultivate new growth strate- in emerging mobile markets. Specifically, these gies in fast-moving technology markets such as tactics are: the mobile and wireless sectors. By highlighting the use of open innovation and platform • In-licensing external technology: This leadership tactics at the heart of leading tactic is used primarily to acquire exter- companies’ approaches to gaining footholds in nal knowledge, bridge internal knowledge mobile growth markets, we are able to answer gaps, and complement existing downstream some of the “how to” questions that continue assets such as manufacturing, marketing, to surround the use of open innovation and and business development. In-licensing platform leadership. In addition, this study also offers fast access to emerging expands on some of the findings from our technology markets. most recent Open Mobile research, where innovation and platform leadership were thought to • Enabling third-party complements: This be the two most important firm capabilities in tactic is a key element of both open inno- mobile. In that study, respondents were asked vation and platform leadership. Platform to select capabilities important for enabling owners generally maintain overall control competitiveness in the emerging 4G era. The over the platform’s development by means capability to innovate—at the product or ser- such as stipulating appropriate technical vice level and/or at the business model level— standards and using modular interfaces was thought to be most critical, followed by the while simultaneously attracting partner need for vision and commitment to platform firms to work on and around the core tech- leadership. Both of these capabilities are nology to drive development and adoption. Networks are formed to link customers,

60 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

platform user groups, third-party devel- • Information transparency: An increas- opers, and component suppliers to boost ingly important aspect of open innovation the platform’s commercial potential in is to ensure a high level of transparency the market. in knowledge management. This includes the need for effective information sharing • Shared architectural control: In shared between a company and its development architectural control, the platform sponsor and adoption ecosystem partners. One takes responsibility for sharing elements approach to enabling information sharing of the platform architecture with partner is the extensive use of open source technol- complementor firms. This tactic is meant ogy, which allows partners to access core to stimulate further development and elements of hardware/software platforms commercial adoption in the marketplace. through means such as Creative Commons It is a key step to enabling the formation license agreements and membership in the of co-creation ecosystems on and around Linux Foundation. the platform.

Figure 59. Open innovation taxonomy framework

Process used extensively to acquire external knowledge that might not otherwise be In-licensing readily available, and to complement existing downstream assets such as marketing, external manufacturing, brand, and market power. In addition, in-licensing helps to reduce technology costs and offers fast access to technology and/or markets.

Platform leaders maintain ﬁrm control over their platforms by setting technical Enabling standards that are often connected to the platform through open interfaces. These third-party interfaces also promote open innovation collaboration with other ecosystem partners complementors such as customers, user groups, and other third-party developers. Platforms succeed through their ability to attract a ﬂow of third-party applications.

In shared architectural control, one or more sponsors (at the corporate entity) control Shared the innovation community’s short- or long-term activities. Sponsors try to maintain architectural high-level decision-making control to ensure that investments yield appropriate control returns. This approach acts as an enabler in the development of a collaborative community and is widely used in mobile platform development.

In open source platform innovation initiatives, transparency relates to the level of access to code guaranteed under the use of an open source license, providing Information developers with a high degree of transparency. Production processes are also publicly transparency available and discussed in public forums. This is often a critical step in the adoption of open mobile software applications in mobile platforms through mechanisms such as the Creative Commons license.

Spin-outs/license-outs from inside the organization to an external organization is Out-licensing another approach often used to harness open source technology in new business external model development. These tactics allow companies to control how technology will be technology used in future applications, accelerate the adoption of technology in innovation, and/or provide protection and/or grants access rights to third-party development.

Source: Deloitte analysis.

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61 A Deloitte Research Open Mobile report

• Out-licensing internal technology: The of open innovation and the challenges associ- ability to spin out/license technology from ated with implementation, but a lack of empiri- inside an organization to an external orga- cal evidence surrounding the development of nization or to the market is an important specific open innovation capabilities, skills, step in business model development. This and processes is notable.162 In this context, tactic allows development companies to the development of a new taxonomy for open control how the technology will be used innovation goes some way toward filling in in future applications and enables them the gaps of how to effectively manage the open to appropriate value from patent license innovation process in fast-moving technology royalties. Out-licensing also provides patent markets that are prone to constant disrup- protection for fledgling technology devel- tion. This taxonomy should aid managers and opment and can aid in democratizing IP executives who face challenges in developing development via open source strategies. effective ecosystem strategies that are designed Additionally, it also gives companies the to support mobile platform innovation.163 ability to utilize dormant technology via By highlighting the critical open innovation external licensing agreements that can then elements used in platform innovation tactics, help stimulate broader innovation projects companies can begin the process of develop- within the company. Finally, spin-outs from ing capabilities around these areas to aid in internal venture capital processes are fre- deploying technology-based growth strategies. quently used to accelerate the adoption of In terms of assessing the usefulness of this core technologies in emerging markets. taxonomy, and in the context of the perfor- When combined and deployed as part of mance category in the structure-conduct- an open innovation strategy, these elements performance framework guiding this analysis, represent a new taxonomy for open innovation more research is required on the linkages (figure 59), one that is grounded in fast-mov- between each of the open innovation tax- ing mobile technology markets and built on onomy elements and the effect on company theoretical foundations from the latest research financial performance. One method currently in the field.161 proposed is the mapping, weighting, and ranking of active elements of open innova- Managerial implications tion capability against company gross margin performance in order to explore the symbiotic This report has several implications for relationship between the many variables under 164 executives managing growth strategies in analysis. This would build on recent research mobile technology markets. To date, much has focused on understanding the foundations of been written on the basic underlying structure company performance in the context of two- sided platform business models.165

62 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Executive guidance

S outlined in this report, leading semi- Ecosystem development conductor companies are increasingly A Ecosystem formation via partnering and “opening up” their innovation and platform network development is a core capability at the leadership processes to integrate external heart of every open innovation and platform resources in the pursuit of mobile growth strat- leadership strategy. Related process activities in egies. Having defined a new taxonomy for the the diagnostic model include network partner main elements underpinning the use of such development, platform community build- approaches, we now focus on capability devel- ing with complementor firms, and platform opment and offer guidance on a diagnostic sponsorship. All of these are core elements in approach to support decision making on open the open innovation and platform leadership innovation and platform leadership strategies. playbooks; it is essential to develop them as integrated capabilities used to form ecosystems Developing a capability for growth. maturity model for mobile business model innovation Open culture development Developing an open and transparent envi- The first step toward formulating a diagnos- ronment that promotes internal and external tic model is to identify the key areas for open knowledge access and sharing on and around innovation and platform leadership capability core platform technologies is thought to be an development, along with the respective tactics important foundation for successful platform and process elements. Doing so will allow innovation.166 Processes and mechanisms used executives to assess strengths and weaknesses to stimulate and enhance creativity and inno- across core capabilities and develop a foun- vation through the creation of an open work- dation for ongoing measurement purposes. ing environment are widely used in emerging Again drawing on insights from the case study mobile markets. They include building linkages analysis and the open innovation taxonomy and networks to open source software and framework development, the key capability open hardware communities, designing open areas and accompanying process elements are development interfaces to provide complemen- thought to be as follows: tor partners access to core platform technology, and generally following the ethos of

63 A Deloitte Research Open Mobile report

sharing architectural control during platform of in-licensing and out-licensing activities. hardware and software development. Together, these elements are seen as essential to appropriating economic value from ventur- Co-creation ing strategies supporting mobile innovation. The third core capability in the diagnostic model is closely linked to both the ecosystem Measuring the effectiveness and open culture development capabilities. of open innovation and Through a commitment to co-creation and the platform leadership use of specific knowledge management tools to aid this process, companies can expect to capability development improve innovation efficiency and creativity.167 Knowing where to develop capability is Processes built around active participation in one element of a diagnostic approach to open technical standards organizations to stimulate innovation and platform leadership deploy- cross-industry collaboration, for example, ment; measuring the effectiveness of each of are common across open platform strategies. the capabilities and processes identified is the Other tactics include user-driven innovation other piece of the puzzle. The ability to assess strategies wherein lead customers and devel- strengths and weaknesses against a defined opers are actively brought into the innovation level of maturity in each capability can help and product development phase of platform executives benchmark progress and help development to integrate external expertise. them plan continuous improvement efforts.169 Developing formal and informal relationships In the approach outlined here, we follow a with other sources of external knowledge, such scoring system developed in prior innovation as academic institutes, is also a common way research170 that can be aligned to five distinct to bolster R&D initiatives.168 Finally, the wide- phases of capability building, and hence matu- spread use of social media, as well as specific rity, in each of the four key capability areas and software tools and mechanisms such as SDKs their relevant processes identified in the diag- and APIs, is seen as vital to attracting external nostic model. These five phases of maturity are: collaborators to software development initiatives that are increasingly core to new mobile • Phase one: No sign of the capability exists. technology development. Relevant processes and activities are inconsistent and executed on an ad-hoc basis. No Corporate venturing clear strategy for deployment is observed. Corporate venturing capability is another key component of mobile business model • Phase two: The need to develop the specific innovation. Each case study company we capability is recognized. Processes and analyzed exhibited some level of commitment activities are clearly identified and defined. to technology-based entrepreneurship. Once A basic understanding of the objectives and again, key processes and activities in this area target goals are evident. Innovation output overlap with ecosystem development, open remains inconsistent. working culture development, and co-creation. Notable in all cases were dedicated incuba- • Phase three: Relevant processes and activi- tor spin-out processes, developer funds, joint ties are in place but usage is sporadic and product development agreements, and IP man- output remains somewhat inconsistent. agement processes incorporating a broad range Employees are encouraged to implement relevant processes on a regular basis.

64 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

• Phase four: Relevant processes and activi- scale, awarding a score of 1 for a phase one ties are used by employees who understand capability, 2 for a phase two capability, and so the reasons behind the capabilities being on. Executives can develop customized ques- developed and the role and impact expected tionnaires to aid in this assessment, exploring from implementing an open innovation and each of the processes and activities to be mea- platform leadership strategy. Innovation sured. This process is exemplified in the sample outputs are consistent. spider chart shown in figure 60 (developed for illustrative purposes only). • Phase five: Processes and activities are Once a company’s current maturity is institutionalized. Employees are moti- documented, leaders can then quickly evalu- vated to deploy them on a regular basis. ate open innovation and platform leadership Innovation outputs are sustained and pro- capability gaps and develop plans to improve vide the company with competitive advan- process areas thought to be weak. Doing so tage in emerging growth markets. will provide a basis for continuous improvement, which can be tracked via a regular Companies can begin to implement the reassessment with the capability maturity model using a standard spider chart analysis model diagnostic. that ranks each process against the maturity

Figure 60. Open platform innovation spider chart (example)

Open culture development

Shared product architecture control Access to open source Open platform interfaces 4 communities 5 Participation in technical Platform community 2 standards development building 4 boards

3 5 Co-creation 4 Academic Ecosystem and Platform institute development sponsorship knowledge outreach management 4 2

Network and Use of social media and alliance partner 3 5 4 software development tools development 4 In/cross/external licensing of IP User-driven innovation

Incubator processes Developer funds

Corporate venturing

Source: Deloitte analysis.

Graphic: Deloitte University Press | DUPress.com

65 A Deloitte Research Open Mobile report

Endnotes

1. Hypercompetition, as described by Prof. Richard 13. Wigginton, Allen, and Steidtmann, The impact D’Aveni, describes hyper-inflated market of 4G technology on commercial interactions, competition that can emerge in sectors prone to economic growth, and U.S. competitiveness; rapid technological disruption with competitive Parks Associates, Asia & Pacific to overtake advantage often difficult to sustain. See Richard North America in 4G/LTE subscriptions as global D’Aveni, Hypercompetition: Managing the Dynam- adoption exceeds 50 million subscribers in 2012; ics of Strategic Maneuvering (New York: The Free ABI Research, LTE subscriber totals have surpassed Press, 1994). WiMAX in 2Q12. 2. Cisco Systems, Cisco visual networking index: 14. Scott Wilson, Open Mobile: The growth era Global mobile data traffic forecast update, accelerates, Deloitte Development LLC, January 2012–2017, February 6, 2013. 2012, http://dupress.com/articles/open-mobile-a- 3. Mary Meeker, “Internet trends,” presented at D10 survey-of-u-s-mobile-industry-executives/. Conference, California, May 29–31, 2012. 15. Matt Hatton, Assessing mobile network operator 4. Craig Wigginton, Dwight Allen, and Carl E. capabilities and opportunities in M2M, Machina Steidtmann, The impact of 4G technology on com- Research, September 5, 2012. mercial interactions, economic growth, and U.S. 16. Cisco Systems, Cisco visual networking index. competitiveness, Deloitte, August 2011. 17. Juniper Research, M2M to generate $35bn in 5. ABI Research, LTE services in the US will generate service revenues by 2016, driven by automotive more than $11 billion in 2015, December 16, 2010. telematics and consumer electronics, press release, 6. Wayne Lam, “Global LTE subscribers set to more May 17, 2011. than double in 2013 and exceed 100 million,” 18. Michele Pelino, The M2M market is a blossoming iSuppli, January 22, 2013. opportunity, Forrester Research, March 16, 2010. 7. Verizon News Center, Verizon wireless 4G LTE 19. Kalorama Information, Remote and wireless markets, http://news.verizonwireless.com/LTE/ patient monitoring markets, August 1, 2011, Markets.html, accessed April 18, 2013. http://www.kaloramainformation.com/Remote- 8. Angela Moscaritolo, “AT&T, Verizon expand Wireless-Patient-6487095/; Harry Greenspun 4G LTE networks,” PCMag, November and Sheryl Coughlin, mHealth in mWorld—How 14, 2012, http://www.pcmag.com/ar- mobile technology is transforming health care, ticle2/0,2817,2412129,00.asp. Deloitte Development LLC, 2012. 9. TeleGeography, US remains at forefront of 4G 20. Carolina Milanesi and Ranjit Atwal, Forecast: LTE adoption, CommsUpdate, http://www. Desk-based PCs, notebooks, ultramobiles and telegeography.com/products/commsupdate/ tablets, worldwide, 2010-2017, 1Q13 update, articles/2012/03/15/us-remains-at-forefront-of- Gartner, March 20, 2013. lte-service-adoption/, accessed January 4, 2012. 21. Annette Zimmermann et al., Forecast: Mobile 10. In 2012, a total of 83 global carriers had launched phones, worldwide, 2011-2017, 1Q13 update, LTE networks in 43 countries with 40 additional Gartner, March 22, 2013. carriers intending to deploy LTE by early 2013. 22. Milanesi and Atwal, Forecast: Desk-based PCs, (Source: Parks Associates, Asia & Pacific to notebooks, ultramobiles and tablets. overtake North America in 4G/LTE subscriptions 23. Zimmermann et al., Forecast: Mobile phones. as global adoption exceeds 50 million subscribers in 24. David Wong, Amit Chanda, and Parker Paulin, 2012, July 24, 2012, http://www.parksassociates. Broadcom Corp. BRCM: Analyst Day—LTE com/blog/article/pr-jul2012-lte.) baseband to sample—Raising estimates, Wells 11. Wigginton, Allen, and Steidtmann, The impact Fargo Securities, December 6, 2012. of 4G technology on commercial interactions, 25. Analyst forecasts suggest total handset volume economic growth, and U.S. competitiveness; will decline to approximately 7 percent CAGR Parks Associates, Asia & Pacific to overtake through 2015 (Societe Generale Cross Asset North America in 4G/LTE subscriptions as global Research, October 18, 2011). adoption exceeds 50 million subscribers in 2012; ABI Research, LTE subscriber totals have surpassed 26. Zimmermann et al., Forecast: Mobile phones. WiMAX in 2Q12, September 26, 2012, http:// 27. Ibid. www.abiresearch.com/press/lte-subscriber-totals- 28. Christin Armacost, Industry surveys: Semiconduc- have-surpassed-wimax-in-2q12. tors, Standard & Poor’s, August 30, 2012. 12. Cisco Systems, Cisco visual networking index.

66 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

29. Morgan Stanley, Tablet landscape evolution: Sheng, and Michele Reitz, Market share analysis: Window(s) of opportunity, May 31, 2012. Mobile phone application-specific semiconductors, 30. Pew Internet, Tablet and e-book reader ownership worldwide, 2011, Gartner, June 1, 2012. nearly double over the holiday gift-giving period, 46. Broadcom, Broadcom launches industry’s first January 23, 2012, http://libraries.pewinternet. certified NFC quad-combo wireless connectiv- org/2012/01/23/tablet-and-e-book-reader-owner- ity solution, press release, December 11, 2012, ship-nearly-double-over-the-holiday-gift-giving- http://www.broadcom.com/press/release. period; Pew Internet, 25% of American adults php?id=s726226, accessed May 9, 2013. own tablet computers, October 4, 2012, http:// 47. Qualcomm, Qualcomm Atheros launches 802.11ac pewinternet.org/Reports/2012/Tablet-Ownership- product ecosystem to provide end-to-end, gigabit- August-2012.aspx. capable Wi-Fi performance, press release, February 31. Deloitte, State of the Media Democracy, seventh 23, 2012, http://www.qualcomm.co.in/news/ edition, 2013, http://www.deloitte.com/view/en_ releases/2012/02/23/qualcomm-atheros-launches- US/us/Industries/media-entertainment/media- 80211ac-product-ecosystem-provide-end-end- democracy-survey/index.htm?id=us_furl_tmt_ gigabit; MediaTek, MediaTek extends Wi-Fi general_tmttrends_mainushp_031913#&panel1-1. plus Bluetooth combo leadership with advanced 32. Milanesi and Atwal, Forecast: Desk-based PCs, 802.11ac plus BT 4.0+HS combo chip for mobile notebooks, ultramobiles and tablets. consumer platforms, press release, March 29, 2012, http://www.mediatek.com/_en/03_news/01- 33. Deloitte, State of the Media Democracy, seventh 2_newsDetail.php?sn=1055. edition, 2013. 48. A “superphone” is a smartphone equipped with 34. Morgan Stanley, Tablet landscape evolution. multi-core processor and at least 1 GB RAM, and 35. Ibid. capable of handling rich-media applications such 36. Dale Ford, “Qualcomm rides wireless wave to take as gaming and audio/video streaming. third place in global semiconductor market in 49. James Song, Semiconductor 2H12 outlook report, 2012,” IHS iSuppli, December 4, 2012. KDB Daewoo Securities, June 28, 2012. 37. Armacost, Industry surveys. 50. Sunit Rikhi, Manufacturing & foundry capabilities, 38. TI has subsequently announced a move out of the Intel, May 23, 2013, http://files.shareholder.com/ tablet market citing competitive pressure and has downloads/INTC/0x0x666570/1f334d17-5f6f- instead indicated an increased focus on position- 4ca5-a72b-2d3bcf8aab3b/05-23-13_Intel_Mftr_ ing its OMAP product line in embedded markets and_Tech_Capabilities_-_Sunit_Rikhi_Lon- such as automotive and consumer products. don_with_Risk_Factors.pdf. (Source: “Texas Instruments cuts 1,700 jobs, 51. “TSMC aims to tighten mobile chip manufactur- winds down tablet chips,” CNBC, 2012.) ing race with Intel,” Infoworld, April 18, 2013, 39. David Wong, Amit Chanda, and Parker Paulin, http://www.infoworld.com/d/computer-hardware/ Intel: Poised to grow presence in tablets and tsmc-aims-tighten-mobile-chip-manufacturing- smartphones, Wells Fargo Securities, May 7, 2013. race-intel-216819; “ARM, TSMC complete 40. David Wong, Amit Chanda, and Parker Paulin, 16nm Cortex-A57 tape-out, chip launching no INTC: Poised to grow presence in tablets and time soon,” Extreme Tech, April 2, 2013, http:// smartphones, Wells Fargo Securities, May 7, 2013; www.extremetech.com/computing/152382- David Wong, Amit Chanda, and Parker Paulin, arm-tsmc-complete-16nm-cortex-a57-tape- Semiconductors handsets/tablets processors, Wells out-chip-launching-no-time-soon. Fargo Securities, March 22, 2012. 52. “Announcing a customer co-investment program 41. ARM Holdings Plc, ARM annual report, 2012. aimed at accelerating innovation,” presented at ASML investor presentation, Veldhoven, the 42. In comparison, the Intel x86 architecture has Netherlands, July 9, 2012, http://www.asml.com/ thrived, operating primarily on the “Wintel” doclib/press/presentations/asml_20120709_2012- model in the enterprise PC and server markets. 07-09_Co-investment_program.pdf. 43. GLOBALFOUNDRIES, ARM and GLOBAL- 53. “IDF: Intel isn’t betting on 450mm wafers or FOUNDRIES collaborate to enable next-generation extreme ultraviolet for 10nm,” Inquirer, September devices on 20nm and FinFET process technologies, 13, 2012, http://www.theinquirer.net/inquirer/ press release, August 13, 2012, http://globalfound- news/2205142/idf-intel-isnt-betting-on-450mm- ries.com/newsroom/2012/20120813.aspx. wafers-or-extreme-ultraviolet-for-10nm. 44. “Intel’s Haswell chips are engineered to cut power 54. A good example of this progression is Samsung’s u s e ,” BBC News, September 11, 2012, http://www. Galaxy S smartphone—the first-generation model bbc.co.uk/news/technology-19557496. contains 512 MB RAM, while the recent Galaxy S 45. Jon Erensen, Mark Hung, and Roger Sheng, III has 1 GB RAM. Market share analysis, mobile phone application- 55. Ryan Chien, “Stunning rise in densities and specific semiconductors, worldwide, 2012,Gartner, revenue drives overall mobile DRAM expansion,” May 28, 2013; Jon Erensen, Mark Hung, Roger

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IHS iSuppli, August 6, 2012, http://www.isuppli. 69. ZPryme Research, Telecom & the smart grid: An com/Memory-and-Storage/MarketWatch/Pages/ industry brief spotlighting the explosive growth of Stunning-Rise-in-Densities-and-Revenue-Drives- the U.S. telecom and smart grid communication Overall-Mobile-DRAM-Expansion.aspx. market, January 2012. 56. Luca De Ambroggi, “Infotainment in cars 70. Ibid. to enjoy solid prospects in the future despite 71. Lance Whitney, “Smart-grid spending to hit subdued growth in 2013,” IHS iSuppli, March $200 billion by 2015,” CNET, December 28, 2009, 5, 2013, http://www.isuppli.com/automotive- http://news.cnet.com/8301-11128_3-10422232- infotainment-and-telematics/marketwatch/pages/ 54.html. infotainment-in-cars-to-enjoy-solid-prospects-in- 72. “Consert raises $17.7 million in venture capital the-future-despite-subdued-growth-in-2013.aspx. funding,” TMCnet, June 30, 2010. 57. Ibid. 73. Marcus Torchia and Usman Sindhu, “Cellular and 58. GlobalData, mHealth: Healthcare goes mobile, the smart grid: A brand-new day,” IDC Energy August 3, 2012, http://www.globaldata.com/ Insights, September 2011; “How utilities are using PressReleaseDetails.aspx?PRID=294. cellular communications to today,” presented at 59. Kalorama Information, Remote and wireless SmartGridNews.com webinar, March 14, 2013, patient monitoring markets; Greenspun and http://www.qualcomm.com/media/documents/ Coughlin, mHealth in mWorld. files/smart-grid-news-how-utilities-are-using- 60. Ibid. cellular-communications-today.pdf; “Qualcomm pushes for cellular in smart grid,” Greentech 61. Colin McCracken, Standards vie for mobile medi- Media, September 7, 2011. cal leadership, Embedded Intel Solutions, spring 2012, http://www.eproductalert.com/digitaledi- 74. A smart home can generally be defined as a living tion/intel/2012/04/Embedded%20Intel%20%20 space in which wireless connectivity technology Solutions%20Spring%202012.pdf, http://embed- is embedded in consumer electronics and home ded.communities.intel.com/docs/DOC-7234. appliances, which are then managed via Internet broadband connections. 62. Ibid. 75. “Smart home revenues forecast to reach USD 63. Ibid. 72 bln by 2017,” Telecompaper, January 8, 2013, 64. Intel, Fact sheet—Intel-GE Care Innovations builds http://www.telecompaper.com/news/smart- upon years of Intel Digital Health and GE Health- home-revenues-forecast-to-reach-usd-72-bln- care home health milestones, http://newsroom.in- by-2017--917623. tel.com/servlet/JiveServlet/download/1825-3277/ 76. Fabrice Hoerner, “The home of the future: Intel-GE_ProductMilestones_FactSheet.pdf, Intelligent and connected,” presented at WCA accessed July 31, 2102. CenterStage, Wireless Communications Alliance, 65. Qualcomm Life, 2net Platform, http://www. December 2012, http://www.wca.org/event_ar- qualcommlife.com/wireless-health. chives/2012/Qualcomm_Dec2012_Conn_Home. 66. QCOM Life, “Ecosystem Collaborators,” http:// pdf. www.qualcommlife.com/ecosystem. 77. NFC (near field communications) is a shortwave 67. Government activity in the telecom sector has radio technology for transmitting data between come from the United States Federal Communica- two devices over short distances. tions Commission (FCC), which placed smart 78. Sandy Shen, Forecast: Mobile payment, worldwide, grids at the heart of the US national broadband 2009-2016, Gartner, May 9, 2012. plan. At the center of this mandate is an objective 79. Mohamed Awad, NFC ready for mainstream requiring state governments to ensure utilities adoption with new combo chip, Broadcom, suppliers provide consumers real-time access to December 11, 2012, http://blog.broadcom.com/ energy consumption data. The FCC also mandates nfc/nfc-ready-for-mainstream-adoption-with- the use of 700MHz spectrum for smart grids and new-combo-chip/. the adoption of open standards for delivering the data. A key target is to improve smart grid access 80. Ibid. to rural areas across the United States that have 81. For more on the topic of open innovation see been of a lesser priority in the past due to the high Henry W. Chesbrough, Open Innovation: The New costs associated with the required infrastructure Imperative for Creating and Profiting from Technol- rollout. To support this rollout, the Rural Utilities ogy (Boston: Harvard Business School Press, Services (RUS) will provide loans to projects 2003); Henry W. Chesbrough, Open Business aimed at developing smart grid broadband Models (Boston: Harvard Business School Press, technology. 2006); and Henry W. Chesbrough; Wim Van- 68. ZPryme Research, Smart grid: Hardware & haverbeke, Joel West (Editors), Open Innovation, software outlook, December 2009. Researching a New Paradigm (Oxford University Press, 2006). For more on platform leadership strategy see A. Gawer and M. A. Cusumano,

68 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Platform Leadership: How Intel, Microsoft and leaders,” Sloan Management Review (winter Cisco Drive Industry Innovation (Boston: Harvard 2008): pp. 28-35; A. Gawer, Platforms, Markets Business School Press, 2002); A. Gawer and M. A. and Innovation (Cheltenham, UK: Edward Elger Cusumano, “The elements of platform leadership,” Publishing, 2009). Sloan Management Review (spring 2002); and A. 90. Ibid. Gawer and M. A. Cusumano, “How companies 91. Complementor is a term used to describe an become platform leaders,” Sloan Management entity within a platform ecosystem, usually a Review (winter 2008): pp. 28-35. partner company, that may not ultimately drive 82. Ellen Enkel, Oliver Gassmann, and Henry W. the direction of growth but contributes to the Chesbrough, “Open R&D and open innovation: development of the platform. Complementors in Exploring the phenomenon,” R&D Management this context can be thought of as development- 39, no. 4 (2009): pp. 311-316. side users and/or adoption-side users. For 83. Chesbrough, Open Innovation; Chesbrough, Open example, development-side users can include Business Models; and Chesbrough, Open Innova- application developers, hardware, software, wire- tion, Researching a New Paradigm. less solution, and multimedia solution providers. 84. For example, see Kevin J. Boudreau and Karim R. Adoption-side users can include customers Lakhani, “How to manage outside innovation,” and other complementors such as carriers and Sloan Management Review 50, no. 4 (2009): pp. device manufacturers. The termcomplementors 69-76; Oliver Gassmann, Ellen Enkel, and Henry was initially coined by A. Brandenburger and B. Chesbrough, “Open R&D and open innovation: Nalebuff; see Co-Opetition (New York: Currency/ Exploring the phenomenon,” R&D Management Doubleday, 1996). 39, no. 4 (2009): pp. 311-316. 92. Michael L. Katz and Carl Shapiro, “Systems 85. Enkel, Gassmann, and Chesbrough, “Open R&D competition and network effects,”The Journal of and open innovation.” Economic Perspectives 8, no. 2 (spring 1994): pp. 93-115; Kevin J. Boudreau and Lars Bo Jeppesen, 86. Henry Chesbrough, “Why companies should have Unpaid complementors and platform network open business models,” Sloan Management Review effects? Evidence from on-line multi-player games, 48, no. 2 (winter 2007): pp. 22-28; Letizia Mortara, Social Science Research Network, April 16, 2011, Johann Napp, Imke Slacik, and Tim Minshall, http://ssrn.com/abstract=1812084; Timothy F. How to implement open innovation: Lessons from Bresnahan and Shane Greenstein, “Technological studying large multinational companies, Center for competition and the structure of the computer Technology Management, Institute for Manufac- industry,” 1998; Kevin J. Boudreau and Karim R. turing, University of Cambridge (2009): p. 56. Lakhani, “How to manage outside innovation,” 87. Enkel, Gassmann, and Chesbrough, “Open R&D Sloan Management Review 50, no. 4 (2009): pp. and open innovation.” 69-76. 88. For example, see E. von Hippel and G. von Krogh, 93. AT&T, “Foundry,” https://www.foundry.att.com/; “Free revealing and the private-collective model Marco Iansiti and Karim R. Lakhani, SAP AG: for innovation incentives,” R&D Management 36, Orchestrating the ecosystem, Harvard Business no.3 (2006): pp. 295-306; Eva Guinan, Kevin J. School Case 609-069, April 2009. Boudreau, and Karim R. Lakhani, “Experiments 94. Annabelle Gawer and Rebecca Henderson, in open innovation at Harvard Medical School,” “Platform owner entry and innovation in comple- Sloan Management Review 54, no. 3 (spring 2013): mentary markets: Evidence from Intel,” Journal of pp. 44-52; Henry W. Chesbrough and Melissa Economics & Management 16, no. 1 (spring 2007): M. Appleyard, “Open innovation and strategy,” pp. 1-34; Richard Tee and Annabelle Gawer, “In- California Management Review 50, no. 1 (2007); dustry architecture as a determinant of successful E. von Hippel and G. von Krogh, “Open source platform strategies: A case study of the i‐mode software and the ‘private-collective’ innovation mobile Internet service,” European Management model: Issues for organization science,” Organiza- Review 6 (2009): pp. 217-232; Pieter Ballon, tion Science 14, no.2 (2003): pp. 208-223; E. “Platform types and gatekeeper roles: The case of von Hippel, “Innovation by user communities: the mobile communications industry,” presented Learning from open source software,”Sloan at the Druid Summer Conference, Copenhagen Management Review (summer 2001). Business School, Denmark, June 17-19, 2009; 89. For more on platform leadership strategy, see A. Geoffrey Parker and Marshall Van Alstyne, “Six Gawer and M.A. Cusumano, Platform Leadership: challenges in platform licensing and open innova- How Intel, Microsoft and Cisco Drive Industry tion,” Communications & Strategies, no. 74 (2009): Innovation (Boston: Harvard Business School p. 17; Michael G. Jacobides, Thorbjørn Knudsen, Press, 2002); A. Gawer and M.A. Cusumano, “The and Mie Augier, “Benefiting from innovation: elements of platform leadership,” Sloan Manage- Value creation, value appropriation and the role of ment Review (spring 2002); A. Gawer and M.A. industry architectures,” Research Policy 35 (2006): Cusumano, “How companies become platform pp. 1200-1221.

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95. Martin Kenney and Bryan Pon, “Structuring the and control in standards architectures: The rise smartphone industry: Is the mobile Internet OS and fall of Japan’s PC-98,” Information Systems platform the key?” Journal of Industry, Competi- Research 11, no. 2 (June 2000); Joel West and tion and Trade: From Theory to Policy 11, no. 3 Siobhan O’ Mahony, “The role of participation (September 2011): pp. 239-261. architecture in growing sponsored open source 96. Mary Meeker, “Internet trends,” presented at D10 communities,” Industry & Innovation 15, no. 2 Conference, California, May 29–31, 2012. (April 2008): pp. 145-168; Timothy F. Bresnahan and Shane Greenstein, “Technological competi- 97. Michael L. Katz and Carl Shapiro, “Systems tion and the structure of the computer industry” Competition and Network Effects,”The Journal (1998), http://www.stanford.edu/~tbres/research/ of Economic Perspectives 8, no. 2 (spring 1994): techcomp.pdf; P. L. Robertson and R. N. Langlois, pp. 93-115; Boudreau and Jeppesen, “Unpaid “Innovation, networks, and vertical integration,” complementors and platform network effects?” Research Policy 24 (1995): pp. 543-562; H. W. April 16, 2011, http://ssrn.com/abstract=1812084. Chesbrough, Open Innovation: The New Impera- 98. Gawer and Cusumano, Platform Leadership: tive for Creating and Profiting from Technology How Intel, Microsoft, and Cisco Drive Industry (Boston, MA: Harvard Business School Press, Innovation. 2003); H. W. Chesbrough, “The era of open inno- 99. Steven Weber, The Success of Open Source (Boston: vation,” MIT Sloan Management Review 44 (2003): Harvard University Press, 2004). pp. 35-41; H. W. Chesbrough, “Open innovation: 100. The SCP framework had its origins in the work of A new paradigm for understanding industrial Harvard economist Edward Mason in the 1930s innovation,” in H. W. Chesbrough, W. Vanhaver- and has subsequently evolved over a number of beke, & J. 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To explore the diversity of processes used to achieve growth through innovation, we used the 107. For analytical and editorial purposes in this case study methodology developed and described report, we present three of the most diverse case by Robert K. Yin, Case Study Research: Design studies conducted. Full details on each individual and Methods (Applied Social Research Methods), case study are available upon request. (California: SAGE Publications, 2009) and K. M. 108. A. Gawer and M.A. Cusumano, “How companies Eisenhardt and M. E. Graebner, “Theory build- become platform leaders,” Sloan Management ing from cases: Opportunities and challenges,” Review (winter 2008): pp. 28-35. Academy of Management Journal 50, no. 1 (2007): 109. David Wong, Amit Chanda, and Parker Paulin, pp. 25–32. Intel: Poised to grow presence in tablets and 103. J. Barney, “Firm resources and sustained com- smartphones, Wells Fargo Securities, May 7, 2013. petitive advantage,” Journal of Management 17 110. 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115. Gartner, Market share analysis: Mobile phone www.qualcommlife.com/images/pdf/press/ application-specific semiconductors, worldwide, QCL_2net_SDK_Release_Launch_FINAL.pdf. 2011, June 1, 2012. 124. Intel, “2012 annual report and form 10-K,” 116. QualcommLife, The 2net platform, http://www. December 29, 2012, http://www.intc.com/annuals. qualcommlife.com/wireless-health; Qualcom- cfm. mLife Fund, http://www.qualcommlife.com/ 125. Sunit Rikhi, “Intel manufacturing and foundry qualcomm-life-fund. capabilities,” Intel London Analyst Summit, 117. Qualcomm Innovation Center Inc., http://www. May 23, 2013, http://www.intc.com/eventdetail. quicinc.com/about/. cfm?EventID=130378; Intel, Intel and ASML 118. Qualcomm Ventures, https://qualcommventures. reach agreements to accelerate key next-generation com/about/how-we-help-you/. semiconductor manufacturing technologies, press release, July 9, 2012, http://www.intc.com/re- 119. 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For 2014, “Developing apps using the Snapdragon SDK the company is targeting a 14nm node process. for Android,” UPLINQ 2012, San Diego, June (Source: Intel.com.). 27–28, 2012; Raj Talluri, “Snapdragon processors powering the next million dollar app,” UPLINQ 128. Martin Curley and Bror Salmelin, Open innova- 2012, San Diego, June 27–28, 2012; Julian Harris, tion 2.0: A new paradigm, open innovation strategy “Snapdragon developer ecosystem,” Innovation and policy group, 2013, http://ec.europa.eu/ Qualcomm (IQ) 2011, Istanbul, September 13–14, information_society/newsroom/cf/dae/document. 2011; Manish Sirdeshmukh, “Designing graphics cfm?doc_id=2182. & gaming apps across the Snapdragon S-Class 129. 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QualcommLife, “Ecosystem overview,” http:// releases/2009/20090604corp.htm; Krystal Temple, www.qualcommlife.com/wireless-medical-infor- Intel, Toyota drive joint research on next-generation mation-technology, accessed September 20, 2013; in-vehicle infotainment systems, Intel, November QualcommLife, “What is 2net?,” http://www. 9, 2011, http://newsroom.intel.com/community/ qualcommlife.com/wireless-health; Qualcom- intel_newsroom/blog/2011/11/09/intel-toyota- mLife, “Developer tools,” http://www.qualcom- drive-joint-research-on-next-generation-in-vehi- mlife.com/2net-developer-tools; Qualcomm, cle-infotainment-systems; Intel, GE, Intel to form Qualcomm Life announces availability of the 2net new healthcare joint venture, press release, August app SDK and initiation of the 2net App Developer 2, 2010, http://www.intel.com/pressroom/archive/ Challenge, press release, August 15, 2012, http://

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releases/2010/20100802corp_sm.htm#story; 142. Krystal Temple, Intel, Toyota drive joint research Dawn Foster, “Welcome to Tizen,” Tizen.org, on next-generation in-vehicle infotainment September 27, 2011, https://www.tizen.org/blogs/ systems, Intel, November 9, 2011, http://news- dawnfoster/2011/welcome-tizen; Tizen.org, room.intel.com/community/intel_newsroom/ “Tizen software development kit (SDK) license blog/2011/11/09/intel-toyota-drive-joint- agreement,” https://developer.tizen.org/download/ research-on-next-generation-in-vehicle- samsung_sdk_license.html; The Linux Founda- infotainment-systems; Krystal Temple, Chip shot: tion, “Members,” http://www.linuxfoundation.org/ Intel, Hyundai, Kia, C&S Technology to develop IVI about/members. solutions, Intel, September 6, 2011, http://news- 130. Intel Capital, “Our advantage,” http://www. room.intel.com/community/intel_newsroom/ intelcapital.com/advantage/. blog/2011/09/06/chip-shot-intel-hyundai-kia-c- s-technology-to-develop-ivi-solutions; “Intel and 131. Intel Capital, “The Intel Capital AppUp(SM) NISSAN collaborate for next-generation in- Fund,” https://www.intelportfolio.com/portco/ vehicle infotainment systems,” Telecomworldwire, fund/; Intel Capital, “Intel AppUp Developer,” April 6, 2012. http://software.intel.com/en-us/appup. 143. For more on Intel’s embedded market opportuni- 132. Anand Lal Shimpi, “Orange to sell co-branded ties see David Wong, Amit Chanda, and Parker Intel smartphone reference design directly to Paulin, Intel Corp., June 27, 2012. customers, codename: Santa Clara,” Anandtech, February 26, 2012, http://www.anandtech.com/ 144. Colin McCracken, Standards vie for mobile show/5578/orange-to-sell-cobranded-intel-smart- medical leadership, Intel, spring 2012, pp. 22-24, phone-reference-design-directly-to-customers- http://www.eproductalert.com/digitaledition/ codename-santa-clara. intel/2012/04/Embedded%20Intel%20%20 Solutions%20Spring%202012.pdf; Intel, Fact 133. Intel, Visa and Intel form strategic alliance to sheet—Intel-GE Care Innovations builds upon advance mobile commerce, February 27, 2012, years of Intel Digital Health and GE Healthcare http://newsroom.intel.com/community/intel_ home health milestones, http://newsroom.intel. newsroom/blog/2012/02/27/visa-and-intel-form- com/servlet/JiveServlet/download/1825-3277/ strategic-alliance-to-advance-mobile-commerce. Intel-GE_ProductMilestones_FactSheet.pdf; Eric 134. David Wong, Amit Chanda, and Parker Paulin, Dishman, Healthcare innovation at Intel: Alive INTC: Poised to grow presence in tablets and and well, Intel, January 27, 2012, http://blogs. smartphones, Wells Fargo Securities, May 7, 2013. intel.com/healthcare/2012/01/25/healthcare- 135. David Wong, Amit Chanda, and Parker Paulin, innovation-at-intel-alive-and-well/; Intel, Intel INTC: Atom mini primer, Wells Fargo Securities, SOA Express for Healthcare, 2010, http://www. June 27, 2012. intel.com/Assets/PDF/DataSheet/Intel_SOAE- 136. Ibid. H_Data_Sheet.pdf; Intel, Home health gateway based on Intel architecture, 2011, http://www.intel. 137. 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PCWorld, July 17, 2013, http://www.pcworld.com/ com/content/dam/www/public/us/en/documents/ article/2044617/new-intel-chief-sees-150-atom- white-papers/intelligent-systems-tanita-gui-paper. tablets-this-year.html; Intel, Intel and Google to pdf; Intel, A meta vision of the future, 2010, http:// optimize Android platform for Intel architecture, www.intel.com/content/dam/doc/case-study/ press release, September 13, 2011, http://www. performance-xeon-7500-imdsoft-study.pdf; intc.com/releasedetail.cfm?ReleaseID=605007& McAfee, “McAfee DeepsSAFE Technology, FAQs,” ReleasesType=&wapkw=android; Shara Tibken, http://www.mcafee.com/us/resources/faqs/ “Android notebooks? Yep, Intel says, and they’ll faq-deepsafe-technology.pdf; Care Innovations, only cost $200,” CNET, April 25, 2013, http:// “Home page,” http://www.careinnovations.com/; news.cnet.com/8301-1001_3-57581500-92/ Intel Health, “Motion computing,” http://www. android-notebooks-yep-intel-says-and-theyll- motioncomputing.com/flash/intel/index.html. only-cost-$200/. 145. For example, Intel’s Atom processor powers the 139. Wong, Chanda, and Paulin, INTC: Atom mini AND Technologies Al-EKG device used for the primer. detection of cardiac arrhythmia in remote patient 140. iSuppli Corporation, Automotive infotainment applications. EKG data is captured, analyzed, and electronics market set for growth in 2012, February sent back to health care providers at a remote 2012. location. The device supports multiple wired and 141. Ibid. wireless connectivity standards. (Source: Intel,

72 Rising tide: Exploring pathways to growth in the mobile semiconductor industry

Faster Detection of Cardiac Arrhythmia for Remote December 11, 2012, http://blog.broadcom.com/ Patients, 2013.) wirless-technology/nfc-ready-for-mainstream- 146. Broadcom, “Annual reports,” http://investor. adoption-with-new-combo-chip/. broadcom.com/annuals.cfm. 156. Sandy Shen, Forecast: Mobile payment, worldwide, 147. Broadcom, “Facts at a glance,” http://www. 2009-2016, Gartner, May 9, 2012. broadcom.com/docs/company/company_fact- 157. Broadcom, Broadcom contributes standards-based sheet.pdf; Donnelle Koselka, Patent board NFC software stack into Android, November 14, ranks Broadcom #2 innovator in semiconductor 2012, http://www.broadcom.com/press/release. industry, Broadcom, February 28, 2012, http:// php?id=s721237. blog.broadcom.com/broadcom-innovation/ 158. Broadcom, “Analyst Day 2012 presentation”; patent-board-ranks-broadcom-2-innovator-in- Broadcom, “BRCM—Q4 2012 Broadcom earnings semiconductor-industry/. conference call,” January 29, 2013. 148. Jon Erensen, Mark Hung, and Roger Sheng, 159. The analysis included a variety of qualitative Market share analysis: Mobile phone application- and quantitative methodologies as detailed by specific semiconductors, worldwide, 2012, Gartner, Matthew B. Miles and A. Michael Huberman, May 28, 2013. Qualitative Data Analysis: An Expanded Source- 149. Broadcom to acquire NetLogic Microsystems, Inc., book (2nd Edition), (SAGE Publications, 1994). a leader in network communications processors, 160. See for example, Joel West, “Strategic openness,” Broadcom, press release, September 12, 2012; presented at the Program in Open Innovation, Broadcom completes acquisition of BroadLight, University of California Berkeley, October 10, Broadcom, press release, April 5, 2012. 2011, http://openinnovation.berkeley.edu/ 150. Broadcom has developed a unique and efficient jukebox-toi-fall11.html; Joel West and Jason system for IP sharing and unified design flows Dedrick, “Innovation and control in standards through its centralized engineering organization architectures: The rise and fall of Japan’s PC-98,” and IP library. This unified design approach Information Systems Research 11, no. 2 (June encourages collaboration across business units, 2000); Joel West and Siobhan O’ Mahony, “The eliminates areas of potential overlap, and reduces role of participation architecture in growing engineering costs and time-to-market. (Source: sponsored open source communities,” Industry Tamara Snowden, Innovation at its best: The power & Innovation 15, no. 2 (April 2008): pp. 145-168; of IP sharing, Broadcom, June 18, 2012.) Timothy F. Bresnahan and Shane Greenstein, 151. 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