Why More Businesses Will be Creating Their Own Chips in 2022

Apple, Amazon, Facebook, Tesla, Ford, General Motors, and a growing number of other companies have moved away from the semiconductor companies and brought chip development in-house.

Mark Bollinger, chief globalization officer at Smith, notes the independent global distributor of semiconductors and electronic components. Understandably, many do not want to find themselves in this situation again.

There are many reasons why a company outside the semiconductor industry might decide to build its own chips, including supply chain flexibility and intellectual property control. “Companies are discovering that the right balance between hardware and software can be different, which usually means they can’t use the same business solution that everyone else in the industry uses,” explains Schiff Tasker, global president, semiconductors, and electronics. Capgemini Engineering, a consulting firm. “Organizations want to emulate market leaders who, with their own chip design and more chip software, can control more of their products, brand differentiation, user experience and supply chain – often giving them a huge margin advantage over their competition.”

change of heart

After decades of viewing chips as something to be obtained from an outside semiconductor manufacturer, most companies in a broad cross-section of industries have never considered the possibility of designing their own chips, either as a need or an opportunity. “Many companies haven’t thought of chip-level innovation as a critical success factor or even a value generator for their own business,” Tasker says. Today, after showcasing many success stories of in-house chip innovation spanning a wide range of industries, companies are discovering the commercial value inherent in designing their own chips. “When used to differentiate products or services, create superior consumer experiences, or improve productivity, these chip-level innovations can provide a sustainable competitive advantage that can far outweigh the upfront investment and commitment required,” he notes.

Until the last year or so, only large companies in a few specific industries, such as consumer electronics, communications and gaming, were able to justify investing in chip development. Chip design costs tens of millions [of dollars], takes from 18 to 30 months [to complete], and requires specialized expertise and tools,” Tasker says. “There are a lot of risks, and companies have to get it right, not only in terms of jobs but also in anticipating volumes and locking in production, especially at a time when manufacturing capacity is so unpredictable.”

Multiple benefits

By producing their own chips, manufacturers can gain more autonomy and self-reliance on semiconductor suppliers. “Companies also have the ability to frame chip innovation and design with their specific technology products,” Bollinger says.

Regardless of supply chain concerns, for many manufacturers the primary appeal of in-house chip designs production is the ability to create custom-made chips that fit their specific requirements. “This gives them more control over software and hardware integration while also setting them apart from their competitors through performance and energy efficiency improvements that may not be possible with generic chips,” explains Syed Alam, head of global semiconductors at business consultancy Accenture.

Cost is the main barrier that prevents many manufacturers from outsourcing chips. “Designing your slides requires building a design team as well as investments in research and development, which only large companies with greater financial flexibility can afford,” says Allam.

Production time is another important factor, and it is often frustrating. Building a team of chip development experts, and then designing, prototyping and testing chip technology, is an expensive process that often takes years. “For companies new to chip design, a return on investment, whether achieved by monetizing differentiation, penetrating new markets, charging higher prices, or mass manufacturing, is a gamble,” Tasker says. Because of this decision [to develop chips in-house] It is not generally conducted as an experiment.”

When creating highly specialized chips, manufacturers must consider the cost and time required to produce enough. Companies must also take the risk of creating too many machines. Bollinger warns that “without a broader market for their chips, unexpected changes in demand for a company’s end product could leave its specialty chips unused and obsolete.”

away

Companies that decide to design chips in-house generally do so only after carefully considering the measured benefits and risks, cost trade-offs, and intent to stay the course. Tasker’s recommendation: “The chip design is not for the faint of heart or shallow pockets.”

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