Market segmentation can often offer insights into a broad customer problem, and naming the market enables a discourse which can lead to the formation of solutions. With this objective in mind, a coming series of articles will discuss a market segment which is not often discussed: Long Lifecycle (LLC) electronics systems.
What exactly are LLC electronic markets?
As the name indicates, the critical feature of LLC markets is that the end product is expected to last more than five years.
In vertical market terms, aerospace and defense, industrial, and medical are examples of LLC markets. In fact, from an economic point-of-view, LLC markets are massive, and drive a great deal of product development. As shown in Figure 1, more than 80 percent of MCAD design activity is in LLC markets (non high-technology). MCAD revenue is a reasonable indicator of overall product design activity.
Given the utility of electronics, LLC markets are on a path towards absorbing an increasing amount of electronics capability. As an example, the automobile industry has seen this growth in the use of electronics with car-and-driver reporting that 40 percent of the cost of a car is now electronics. Often, electronics content provides the critical differentiated features. Examples include:
- Auto: drive-by-wire, infotainment systems, and advance perception systems
- Washing machine: optimize water and energy
- Industrial plants: automation, preventive maintenance, and energy optimization
However, this seeds a problem which can have expensive consequences. Why?
The underlying technology for electronics is semiconductors, and semiconductors are dominated by Short Life Cycle (SLC) markets. As Figure 2 shows, some 92 percent of semiconductor volume goes into various aspects of the consumer related high technology market.
This dichotomy of these two market situations is stark. Further, given the growth rate of the consumer marketplace, the situation is likely to become more extreme.
For semiconductor companies, the investments in a modern digital fabrication facility are in the billions and increasingly limited to a small number of players (TSMC, Intel, etc). The obvious conclusion from the data is that LLC markets cannot be a large focus for semiconductor companies, and the result is that any divergences in product requirements amplify issues for LLC customers. Table 1 outlines the critical differences in the two worlds.
The result is that given the dominance of the SLC market for chips, the semiconductor supply chain churns with SLC lifecycles and the LLC markets must absorb the effects. This leads to two significant issues for LLC customers.
- Obsolescence: As the SLC market churns on particular parts, semiconductor vendors are forced to end-of-life parts which are no longer economically viable. This creates an issue for LLC customers still using these parts.
- Reliability: SLC markets do not need extended reliability, so parts are optimized for this purpose (5 years max). For LLC customers, the electronics part of their system often faces reliability issues.
The result for LLC customers is that they are a minor player in a part of their supply chain which provides the greatest differentiated value for them. A very very difficult situation. No one is immune from this problem. Even the U.S. Department of Defense faces these issues.
Table 2 provides an interesting glimpse into the defense marketplace. The table shows the revenues and R&D spend of the sum of the top defense contractors and one consumer company (Apple). Some observations:
- Size: It is interesting and somewhat surprising to realize that one consumer company is nearly the size of the whole defense consulting market.
- R&D spend: Apple by itself outspends nearly the whole defense sector in R&D both in size and as a percentage of revenue. If you believe Apple is unique, Microsoft actually has a higher R&D spend.
In summary, the LLC market is a coherent market segment with customers who face similar issues. Today, these issues manifest themselves in issues of semiconductor obsolescence and reliability. In most cases, the original designs were completed without comprehension of these issues and years later, the procurement, finance and maintenance functions must face these issues on the “back-end” of the pipeline. At this point, the choices are limited and costs high.
Is there a way to address these issues with a new style of design? What is the role of EMS or EDA companies in addressing these issues? We’ll examine these topics in future blogs.