Insights

Hi-Tech Platform-as-a-service: The Digital Chip Revolution

UST Product Engineering Team

In 2022, semiconductor companies find themselves at a crossroads. With increasing costs, supply chain woes, and the slowing of Moore’s Law, they are looking for ways to increase profits and stave off competition.

WHAT YOU NEED TO KNOW

• Tech giants continue to make their own chips, adding a new challenge to any already competitive marketplace
• Semiconductor companies are turning to “as-a-service” business models to build resilience and drive recurring revenue
• They must identify value-adds to make this a valuable pricing structure for clients

The industry is used to rapid growth as semiconductors have underpinned almost every major technological development since the personal computer. With the promise of automation, AI, and the Internet of Things (IoT), semiconductor demand will continue to increase. And yet, many in the industry are looking to flip the business model on its head.

In addition, there has been significant consolidation in the semiconductor market, leading to fewer winners, heightening the stakes for those remaining companies to get their strategy right.

The biggest challenge they are facing is the increase in customers who are beginning to build up capabilities and capacity to make their own chips. Apple’s move from Intel to their own M1 chips sent shockwaves through the industry. Other tech giants, like Facebook, Google, and Microsoft, have all begun making their own chips for application-specific integrated circuit (ASIC) capabilities. With increased enterprise demand for ASICs, this trend is likely to continue. Many are considering end-to-end backward integration from their own design and fab agreements to ensure that industry-level disruptions do not thwart their supply.

So what can semiconductor manufacturers do to stay competitive? Like other companies, chip manufacturers are embracing the platform-as-a-service movement to create a recurring revenue model. Chip manufacturers are beginning to offer software-enabled products and services to their clients, emulating software-as-a-service (SaaS) companies.

ISG released a recent report that delved into the platform-as-a-service moment and analyzed the companies helping them realize their new business models. We’ve summarized some of the key components below.

HERE’S WHY COMPANIES ARE EXCITED ABOUT THE PLATFORM-AS-A-SERVICE REVOLUTION

IT CREATES A RECURRING REVENUE MODEL

It’s no longer rare for hardware manufacturers to lean into subscription models. Apple, for example, has a phone upgrade subscription service, where users can eventually turn in their older phones for a new model.

Bundling software with chips can provide a subscription or consumption basis. They now see the one-time-purchase business model that semiconductor companies have had since the beginning of their industry to be too limiting. But semiconductor companies need to provide value if they’re charging customers a recurring fee.

VALUE PROPOSITION UPON RENEWAL

While it’s never been easy to change semiconductor providers, a SaaS model makes it even more attractive to stay with the existing supplier by the quality of services associated with their semiconductors. In addition, providers can provide favorable terms for swapping in new and improved semiconductors when they’re released.

MORE PALATABLE TERMS FOR CUSTOMERS

Instead of a high CapEx that buyers could struggle to get past the buying committee, chip manufacturers bill platform-as-a-service as smaller OpEx payments. The semiconductor manufacturers prefer this as well, as the platform model gives them more stability and recurring revenue.

MORE DIRECT AND FREQUENT CUSTOMER TOUCHPOINTS

In a CapEx model, manufacturers are in contact less frequently with clients, going periods of time without any communication until it’s time to sell an upgrade. During that time, performance issues unknown to the manufacturer could jeopardize the relationship. A platform-as-a-service model introduces more direct relationship building through customer success teams.

OPPORTUNITIES FOR UPSELLING

Innovative semiconductor companies can identify new and unique ways to sell in additional services, which would not feel out of place considering the client is already paying monthly fees. Upsells could include data and analytics, AI-driven insights, and additional consulting services to help the client maximize its tech stack. While this is a new approach for hardware manufacturers, those that have a digital engineering mindset and champion innovative thinking will have a better time of it than those that are wedded to traditional approaches.

With the tumult in the semiconductor industry, more manufacturers are turning to best-of-breed consultancies to help them navigate this shifting market. With that in mind, ISG produced this report that provided an unfiltered view of the current landscape and which providers were leaders, market or product challengers, rising stars, or contenders.

ISG’S HI-TECH ECOSYSTEM ANALYSIS

ISG put providers in quadrants that assessed each provider’s ability to transform a client into a digital enterprise, produce an accelerated digital strategy, ability to implement predictive maintenance activities, and security integration.

ISG named UST a leader in hi-tech digital engineering based on its strong digital transformation strategy and ability to turn “pre-silicon heavy engagements to complete outsourcing-based turnkey models,” which drives superior growth.

ISG cited our experience in backend design, physical design, design for testing (DFT), analog and mixed signal as a key component of our leadership position. It also commended UST for its ability to go deep into business strategy, which is a competitive advantage against other companies in the industry.

Whereas many of our competitors focused on pre-silicon design, UST started with a focus on post-silicon and tapped into our experience in the embedded software space to scale up quickly. As a result, many of the world’s leading semiconductor companies turn to us for end-to-end solutions.

THE UST DIFFERENCE

UST has an unsurpassed track record in the semiconductor industry, serving 35 of the top companies in the industry. Our over 5,000 professionals in 15 countries focus on four major components: pre-silicon design (such as ASIC, FPGA, custom ASIC and R&D services), post-silicon (system validation, firmware validation, port validation, PCB design, test characterization), embedded software and mechanical engineering.

Our recent acquisition of SeviTech Systems has added to our exemplary backend, frontend and analog design capabilities. As ISG noted, leading semiconductor companies work with UST for its strengths in semiconductor R&D, ODCs, custom ASIC design, and more. In recent years, we’ve strengthened our leadership position in the semiconductor space and elevated our position as an end-to-end engineering and R&D service partner.

To learn more about our capabilities and to access the ISG report, click here.