Falling prices plague smart sensor sales growth

Article By : Roland Berger

Global smart sensors sakes are expected to double to 30 billion units by 2020, but the industry is plagued by falling prices, according to analysts.

The demand for smart sensors has been growing for years, as these kinds of sensors start to play an important part in several sectors, including automotive, IoT, Industry 4.0 and other application areas such as modern health monitoring systems. They collect data and automatically connect themselves with machines and robots to ensure constant systems monitoring and optimised processes.

This strong demand means that sales of smart sensors are growing at a rate of 17% per year. According to a new Roland Berger study the number of units sold is likely to double to 30 billion between 2015 and 2020. However, the increasing competition in the market and the growing demand for low-cost products, particularly in the consumer electronics sphere, combine to exert downward pressure on prices.

The market price that manufacturers receive for each sensor unit they make is falling by 8% per year on average. It is expected to halve between 2010 and 2020 in a trend that leaves manufacturers with no choice but to act, according to Roland Berger experts.

"The erosion of prices is ramping up the pressure on the sensor manufacturers and their business models. In order to stay profitable, they need to look at strategically realigning their company and adapting their business model to the new market in which they are now operating," said Michael Alexander, partner at Roland Berger.

In their analysis, the Roland Berger experts identified three main types of sensor manufacturers: The first is measurement specialist, which is type of company that manufactures sensors with a focus on precision and quality of measurement. Measurement specialists are normally pure-play suppliers and are therefore particularly susceptible to cost pressure from their customers.

There's also the local analytics leaders who develop solutions comprising numerous connected sensors. Their systems analyse and process data streams and are delivered as complete features ready for their customers to use.

Meanwhile, the digital Innovators collect and analyse huge volumes of data from their own and others' server networks and integrate a range of systems. Their sensors may be part of larger platforms or their own proprietary solutions, and direct access to end customers is often central to their business.

"All three manufacturer archetypes will still be able to operate profitably in years to come," said Alexander. "But it is important for sensor producers to understand their position in the market and to work out new strategies for the future accordingly."

These strategies, according to Alexander are threefold: The Analog Now strategy is considered to be the perfect fit for measurement specialists. Companies pursuing this strategic option typically face strong cost pressure in their business and should therefore target high volumes and standardized sensors.

Meanwhile, the Smart Plug & Play strategy is the domain of local analytics leaders, whose success lies in having the right systems to combine measurement data with smart software algorithms. The systems they supply will have the ability to pre-process data and may ideally even have deep learning or similar capabilities. Sensor manufacturers should simultaneously sound out the market for new application options and, if their solution is found to be transferrable to other areas, their systems could be diversified with simple modifications.

Lastly, the Sensor Fusion strategy targets digital innovators offering end-to-end solutions. They need to be in a position to collect large data sets from a wide range of measurement sources and process them in connected computer systems or in the cloud. Standardised platforms can help them minimise costs and make their products suitable for the mass market.

"Neither the three strategies nor the archetypes themselves should be seen as a straightjacket," said Alexander. "What they really are is a set of guidelines for individual companies to adapt to their own circumstances." He added that it is essential for players in the sensor market to take action soon, before the cost pressure becomes excessive and the competition too fierce: "When your current positioning isn't profitable anymore, that's when a realignment of your strategy is overdue."

Leave a comment