HomeNewsNews Details
News Details
Date: 20-08-15

Its high risk for semiconductor vendors to depend only on few big customers

What about the analysis of 100 companies giving a 1 million order versus one company placing 1 million order to a semiconductor device making company. Well, if you're supplying a semiconductor device to a company like Apple for use in its high volume iPhones and iPads, that gives a great boost to the branding of your product as well as sales revenue. What if Apple doesn't repeat the same order next year, you are in for a trouble, your sales revenue suddenly drop if no such other big order comes through. The latest study by Gartner clearly points out that one big order from one big customer is always riskier than multiple orders from small companies.

Depending too much on one single customer is extremely riskier than depending on multiple customers. Everything is good if your single big customer able to do well and your company' revenues fly, but in case of opposite happens, than curve turns downwards same way.

If you have a single or few big customers, companies don't need to spend too much money on marketing. However the wise semiconductor companies always spend more money on the marketing even during their good revenue growth period and target all type of customers.

Below is the some of the very interesting finding by Gartner on the impact of revenue growth due to small buyers of chips:

China is the fastest-growing small-customer market, with semiconductor revenue reaching US$14.9 Billion in 2014.

Semiconductor companies need to diversify their sales strategy to focus on the large number of smaller organizations that offer fast and stable growth, rather than relying on big deals from large customers that are in a constant state of flux, according to Gartner, Inc. Startups and small electronics companies spent US$78.3 billion on semiconductors in 2014, representing 23 percent of the total semiconductor market.

Gartner estimates there are more than 165,000 companies that buy semiconductor chips around the world: The top 10 spend nearly 40 percent of the total semiconductor revenue; the top 11 to 100 spend about 30 percent; and the remainder spend 30 percent. Despite the top 10 accounting for such a large percentage of the market, some of the largest customers have decreased orders in the past five years, challenging the semiconductor vendors that mainly supplied to them. While Samsung and Apple have significantly increased orders in the same period due to success in the smartphone market, semiconductor vendors are concerned about the risk of relying on large customers such as these.

"The industry has seen some fairly significant disruption in recent years, which has highlighted the risks associated with semiconductor vendors putting all of their focus on a limited number of large customers, when small companies offer highly profitable and stable growth," said Masatsune Yamaji, principal research analyst at Gartner. "To overcome the risk, some semiconductor vendors have tried to increase their business with small customers, while others are also realizing that they should adjust their strategies to do this."

China is the fastest-growing among the major small-customer regions, with spending by these organizations on semiconductors growing from US$7.5 billion in 2007 to US$14.9 billion in 2014; growth in the smartphone and media tablet markets has been strong. In the Americas, EMEA and Japan, revenue from each customer is small, but the total market size of small customers is big due to the large number of such customers.

Gartner maintains that the number of customers will significantly increase after 2017, due to future growth of the electronics market and the increase in the number of Internet of Things solutions. It is anticipated that the maker movement, which creates and markets products that are recreated and assembled using unused, discarded or broken products from computer-related devices, will drive the foundation of startups and growth of small customers.

According to Gartner, big deals are not confined to large organizations, with many successful vendors having success in the small-customer market by leveraging distributors. Limited sales resources can be compensated for by aligning with good sales partners. Strong adherence to direct sales restricts the opportunities with small customers, especially among general-purpose semiconductor vendors. In fact, semiconductor distributors earn a large part of their revenue from general-purpose semiconductors.

"Semiconductor vendors should focus more on the high-tier customers and outsource sales activities with small customers to distributors," said Mr. Yamaji. "Distributors can bring various products to market at the same time, so this outsourcing will reduce the load, not just for semiconductor vendors, but also for customers. Some distributors offer end-of-life product delivery services, so vendors should partner with these distributors to help small customers avoid having to order excessive loads."

To take advantage of the growing small-company market, Gartner recommends as a starting point that vendors need to evaluate how much revenue can be expected, compared with the large customers. The importance of the small customers for each vendor differs by its product type and its target sales region, so vendors need to have their own unique goals in the small-customer market.

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

0 Comments
Default user
Related News