Gartner thinks so. The market research firm is advocating a sales strategy change at semiconductor companies as a way to achieve faster and more stable growth. Gartner recommends that semiconductor companies focus on a large number of smaller companies instead of big deals from larger ones. One of the big reasons: startups and small electronics companies spent $78 billion on semiconductors last year, which is 23 percent of the total semiconductor market.
Supporting smaller customers is supposed to be the job of electronics components distributors, and still is. There have been many cases where distributors have partnered with startups and smaller companies to help get their products to market faster and at a lower cost. In fact, semiconductor sales continue to hold the lion's share of the NA distribution industry, accounting for $11.2 billion in revenues for the top 50 North American distributors.
Vendors should leverage distributors, said Gartner. "Semiconductor vendors should focus more on the high-tier customers and outsource sales activities with small customers to distributors," said Masatsune Yamaji, principal research analyst at Gartner, in a statement. "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."
There are more than 165,000 companies that buy semiconductor chips globally with the top 10 spending nearly 40 percent of total revenue, said Gartner. However, research finds that some of the largest customers have been decreasing their orders over the past five years, putting semiconductor vendors that supply them in a bind.
With this kind of risk, semiconductor vendors are eyeing the smaller customer base. China is said to be the fastest growing, nearly doubling its spend from $7.5 billion in 2007 to $14.9 billion in 2014 thanks to smartphones and tablets. While revenue from each customer is small in the Americas, EMEA and Japan, the total market size is big due to the large number of customers, said Gartner.
The number of small customers is expected to keep growing significantly after 2017 in part due to the Internet of Things solutions. Gartner expects the whole maker movement to drive the “foundation of startups and growth of small customers.”
But before semiconductor vendors make the transition Gartner recommends they evaluate how much revenue can be expected compared with the large customers. They also need to consider product type and target sales region.
"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," stated 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."
Gartner provides a detailed analysis in its report, Market Trends: Startups and Small Customers Offer Semiconductor Vendors Fast and Stable Growth.
Distributors: I’m looking to hear from you about any partnerships where you were able to help a startup or small company bring its product to market on time and on budget. You can reach me at firstname.lastname@example.org.