2023 Semiconductor Transformation Study

In an industry that remains at the forefront of technology, the theme of "innovate or perish" continues to ring true from the previous survey—reflected by 80% of respondents who identified product development, innovation, and expanding markets as being key to their transformation strategy.

Our 2023 survey finds competition is still a key influencer on strategic priorities. But, unsurprisingly, supply chain complexity/continuity, geopolitical concerns, and weakening consumer demand (as of the first and second quarters of 2023) have emerged as the top three prominent drivers, reflecting the fluid nature of business risks and opportunities in this industry. This underscores the importance of agility and the ability to respond effectively to a wide range of external influences.

Traditionally, semiconductor companies have walled off their core capabilities, deepening expertise and focusing on differentiation to offer value. Similar to what we found in our 2021 survey, our current survey shows nearly 40% of respondents are focused on growth through expansion in new markets, while the remaining 60% are focused on growth through existing or core markets. Specifically, respondents indicate that they expect transformation advantages to be realized by augmenting existing solutions in their existing markets or developing new solutions for their existing markets.

Companies say that competitive advantage (69%) and speed of implementation (47%) are the most important priorities when implementing new capabilities. They also prioritize initiatives that alleviate immediate pain rather than those that achieve a sustained competitive advantage.

During the pandemic, the entire semiconductor value chain had to deal with unprecedented volatility. This volatility also coincided with geopolitical initiatives to establish greater control over the semiconductor supply chain as a key component of a national economic and security strategy.

These macro concerns, along with the ever-present waxing and waning demand-and-supply cycles that are characteristic of this industry, have led to an increased emphasis on building supply chain resiliency. Survey results mirror this, with the percentage of respondents saying that supply chain resilience is a strategic priority rising more than five times to 31% since pre-pandemic times at 6%. Not surprisingly then, survey results indicate an overwhelming 69% of respondents are considering or making substantial changes to their supply chain footprint.

Although alternative business models are not observed everywhere, they have been gaining traction across the entire semiconductor value chain. Equipment manufacturers are starting to offer certain software subscription services with their equipment purchases to provide benefits such as proprietary equipment data analyses. Foundries are offering turnkey services to manage post-fab manufacturing for customers whose core business is not semiconductors. And we’ve observed more fabless companies trying to catalyze growth by focusing on the entire system platform including software that is monetized as a subscription.

A large portion of survey respondents are expecting more than 25% of revenues to come from as-a-service business models over the next five years. But the shift to as-a-service models comes with its own set of challenges, such as establishing new ways to forecast, tracking a new set of key performance indicators, and managing new types of data.

Tweaks to the operating model are essential to achieve a range of different objectives associated with the transformation journey. For some companies, it can help concentrate scarce resources (such as data scientists), who are currently scattered across business areas, and bring them together to better support the company. While for others it enables a greater focus on an emerging business model.

For the survey respondents, improvements are currently being used to ensure their operating model is adequate. There is no single magic bullet, and the area of focus varies greatly across respondents, covering speed, collaboration, agility, customer-centricity, and accountability. The data shows that companies are taking a balanced, multi-objective approach to transformation.

The semiconductor industry generates a significant quantity of data, and as companies strive to be more digital, better data management and data useability are often part of their transformation journeys. Many transformed capabilities are also enabled by new technology tools and architectures. However, IT organizations are often not fully aligned with such transformation priorities. While the level of alignment with IT has improved significantly since the previous survey, it is only at 56% in this year’s survey, up from 37% in 2021.

A key challenge observed during transformation initiatives is a lack of enterprisewide integration of digital proficiency—digital capabilities spanning the entire product life cycle from design to manufacturing. This is reflected in the limited level (12%) of full-process automation that respondents believe currently exists.