The ecosystem disruptions wrought by ADAS and AV development have made the automotive-semiconductor market more hospitable to startups...
The ecosystem disruptions wrought by ADAS and AV development have made the automotive-semiconductor market more hospitable to startups. This four-part series explores the contextual drivers of the recent increase in startup activity, the challenges these new players will face as they build their businesses, strategies for success, and the potential impact of the Covid-19 pandemic on the startup trend going forward.
Technology-driven megatrends in the automotive industry are disrupting the semiconductor ecosystem. Breakthrough innovations in energy systems, connectivity solutions, and advanced driver assistance and autonomous driving systems are creating new opportunities — and new competitive pressures — for semiconductor solution providers that are changing the competitive landscape as never before in the history of the automotive-semiconductor industry.
In response to these new opportunities and competitive pressures, business forces have also been changing the landscape. These business forces can roughly be categorized into three main areas:
(a) consolidation through mergers and acquisitions;
(b) entrance of chip vendors from other market segments like mobile or computing; and
(c) the emergence of entirely new startup companies that are better able to address specific market and technology niches left open by the established semiconductor players.
The automotive-semiconductor M&A wheel of fortune continues to spin with varying outcomes. Qualcomm’s acquisition of market leader NXP, which would have been a game changer for the automotive industry, ended up falling apart. Renesas, currently the No. 3 automotive-semiconductor player, announced its acquisition of IDT, a strong player in the analog/mixed-signal domain. The IDT acquisition came less than 18 months after Renesas acquired Intersil, putting the Japanese semiconductor giant on a path to threaten NXP and Infineon in the automotive market. In turn, in 2019 Infineon acquired Cypress Semiconductor, which also has a broad automotive offering.
The strength of Maxim Integrated in the automotive market was one of the reasons for Analog Devices’ all-stock acquisition of Maxim for $21 billion. And most recently, Nvidia’s record-setting $40 billion offer for Arm explicitly references the self-driving–car market as part of its strategic rationale for the acquisition. Of course, whether this merger is ultimately approved remains to be seen.
Intel, Nvidia, and Qualcomm are the most notable examples of entrants from other verticals moving into the automotive space. These companies saw opportunities in high-end computing, which was largely left unaddressed by the established automotive-semiconductor incumbents. The strategies employed by these companies have been very different.
Intel has relied heavily on its acquisition of Mobileye to become the leader in vision-based ADAS systems. Nvidia leverages its extremely high-end GPUs to power the artificial intelligence (AI) platforms required by self-driving cars. Qualcomm has not yet enjoyed the success or notoriety of the two other companies in automotive. The company has primarily relied on its leadership in the cellular system-on-chip (SoC) market to gain a foothold in telematics and vehicle communications (C-V2X). However, Qualcomm’s recent partnership with Veoneer has put the rest of the industry on notice that its Snapdragon platform could become a major contender in ADAS.
Disruption creates opportunities
Historically, the automotive industry has been a difficult market for startup companies, especially hardware startups, because carmakers’ inherent conservatism has made them more comfortable working with established suppliers. That preference is understandable given the stringent quality and supply reliability requirements of the industry and the expectations that suppliers maintain sufficient capital reserves — barriers to entry that are particularly challenging for cash-strapped startup companies. Furthermore, in previous decades, venture capital firms preferred to invest in less capital-intensive industries with faster returns on investment. Semiconductor startups in general often struggled to secure the funding required to scale.2 Startup semiconductor companies hoping to enter the automotive market found themselves at the intersection of these two harsh and mutually reinforcing realities.
Several recent developments, however, have contributed to an increase in the number of automotive-semiconductor startups.
One factor has been the advent of new disruptive customers, such as Tesla, Nio, Waymo, and Byton, who were not a significant part of the automotive ecosystem a decade ago. As non-traditional automotive companies, these disruptors had the freedom to use non-automotive–qualified products if it helped them get to market faster while providing unique value propositions to the end users.
Another is the appetite for innovation and a recognition of the need to accelerate the innovation process on the part of the established automotive industry in response to the disruptors. Further drivers are the breakthrough success of a few bellwether startups, such as Mobileye, and the reduction in out-of-pocket costs associated with getting new chip solutions to market, thanks to improvements in design methodology and IP reuse.
A final factor is the support of ecosystem partners who provide in-kind services or significant discounts to selected startups. Such ecosystem partners can range from IP and EDA tool providers to manufacturing and test suppliers. In some cases, their services or discounts are provided in exchange for equity in the startups. In others, the ecosystem partnerships are constructed purely as part of an up-front investment in what may later turn into a growing and profitable supplier-customer relationship.
For example, Arm’s “Flexible Access for Startups” program offers free access to a range of Arm IP blocks to early-stage SoC startups. Arm is betting the program will win it long-term loyal customers who will remain committed to the Arm platform as their businesses grow. Startups can tap into an array of semiconductor ecosystem partners by joining an incubator like Silicon Catalyst. In exchange for a small equity stake, Silicon Catalyst helps the startup gain access to its network of expert advisers, investors, and universities. It also provides goods and services such as EDA tools, wafers, test equipment, engineering services, and business support through its in-kind partners.
Barriers still loom
These developments do not mean that the automotive industry has suddenly become an easy environment for startup semiconductor companies. Competition among established players remains fierce. Car OEMs still maintain stringent quality requirements, which can be challenging for startups with limited financial resources.
However, the appetite at car OEMs and Tier 1 suppliers for innovative solutions has become so great that they are willing to consider working with relatively unproven companies when those newcomers offer something truly unique and differentiated that cannot be obtained through their more traditional channels. AutoTalks, Geo Semiconductors, Indie Semiconductors, and Graphcore are just a few of the startup semiconductor companies to gain traction in the automotive industry in the last few years.
Part 2 of this series will explore the first step on the road to traction: the proof of concept.
— The author is Drue Freeman, Board Member, Sand Hill Angels; Adviser Board Member, Silicon Catalyst