Monday, August 11, 2014

Pain Points in the Semiconductor and Solar Sectors

I mentioned in my report from Intersolar / SEMICON 2014 that the semiconductor and solar sectors have some unmapped pain points.  I took it upon myself to identify those pain points in brief CustDev interviews with vendors on the expo floors.  I was not there to sell them anything, so I had more credibility than a vendor.  That's how I obtained the insights I'll share below.

I'll start with the semiconductor ecosystem.  The SEMICON exhibitors were all kinds of trinket makers that large semiconductor manufacturers would find in their supply chains.  The most frequently mentioned pain point for them was production cost.  Equipment makers don't always know what drives the cost of producing a complex product, which in turn determines price.  They don't even know if the problems reside in their designs or their supply chains, even after analysis.  Longer lead times add costs and customers don't always forecast their needs very well.

Other pain points in semiconductors seem to be hostage to production costs.  Addressing marketing channels is complicated by tight resources (making it difficult to address a changing market segment) and the difficulty of getting product release information into the hands of the appropriate technical audiences with purchasing authority.  One frequently mentioned pain point was the gripe that human resources were a recurring irritant.  Hiring the right people was always difficult and many of the company leaders I interviewed said "people cause problems."  They never said what kind of problems; I suspect those problems are really from lack of knowledge about how to solve marketing and production problems.

I have concluded that the relationship between production costs and marketing costs is a strong source of pain for the upstream parts of the semiconductor sector.  The mismatch between market knowledge and the ability to adjust capacity is costing the sector money.  This is an underexplored area that is fertile ground for solutions in codifying manufacturing knowledge, material costs, and business process maps.  I believe that startups can deliver disruption in this market by deploying enterprise Big Data analytics solutions addressing those knowledge gaps.  There is money to be made in solving manufacturing problems.

I'll continue with the solar sector.  Three very different pain points emerged under the broad topics of regulation, project knowledge, and financing.  Regulation poses unexpected problems for installers unfamiliar with local fire codes or national safety regulations.  This is particularly costly for inverters that must manage fault detections and shutdowns.

Project knowledge is a challenge for solar installers.  Project developers often ignore monitoring until the end of a sales cycle, and this is not weighted in system design until after funds are spent.  Each solar project is unique to a specific architecture and geography.  Developers stumble when they ignore the costs of grid access where transmission lines are inadequate.  I had a hard time believing some solar component manufacturers have difficulty sourcing basic materials like steel and silicon, so perhaps I spoke to at least one operator who was incompetent.

One very knowledgeable solar person made my day by addressing the cost of a typical installation.  Soft costs are a big factor in residential PV.  The expected lifetime of durable modules in commercial PV are still too much of an unknown.  These random costs make the perfect segue from project knowledge to financing, because uncertainty in estimating project cost means financing must be flexible.  The ease of obtaining customer financing would sell more solar PV systems.

I have concluded that the challenges facing the solar sector are more diverse than those facing the semiconductor sector.  Entrepreneurs can't solve the regulatory pain point, but utilities may be an untapped source of support in pushing reform.  There may be a market for apps that help installers navigate local, state, and national regulatory mazes.  DOE has made strides in reducing soft costs and making project planning more transparent.  Solving the project knowledge pain point is an open field for startups developing Hadoop-based knowledge sharing architectures.  Finally, the financing pain point has a plethora of solutions at the federal and state level but consumers may not know about all of the tax incentives they can use.  Yield cos and tax equity are financial solutions for commercial projects but offer little relief for single-unit residential installation.  Once again, apps may help the real estate sector arrange financing for home improvements that incorporate solar, wind, and storage installations as home improvements.

I only had time to hit up a few dozen vendors so my impressions are not as robust as what a startup would need for an actionable marketing plan.  Oh yeah, the funniest part of my CustDev exploration was when I asked one SEMICON guy to name his biggest pain point.  He rolled his eyes and said, "People like YOU!"  I knew when to back off but I was not deterred from gathering anecdotes.  I make it my mission to understand how to make money from disruption.  Someday a startup will catch my eye because it can solve the problems I identified here in bold type.  I'll be ready to commit my knowledge as sweat equity.