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3M's Market Research in High-Tech Markets Through Lead Users

3M is a comprehensive solutions company producing a wide range of industrial and consumer products based on science and technology. It offers innovative products and services across various sectors, including industrial/occupational safety, healthcare, electronics, energy, and transportation. In the high-tech market, 3M has continuously employed the Lead User Methodology for marketing and new product development. This methodology has been one of 3M's core innovation strategies, systematically integrated into their product development process since the 1990s. In 1990, 3M set a goal for 30% of their revenue to come from products that did not exist four years prior. This shift in approach led to the adoption of the Lead User Process (LSU) for product development, based on the premise that "commercially important products are first thought of and prototyped by users rather than manufacturers" and "these products tend to be developed by entities that lead market trends and far exceed other requirements."

3M has identified lead users across various industries, such as healthcare, electronics, construction, and manufacturing, and has directly communicated with them to explore innovative ideas and product improvement directions. Many of 3M's innovative products, such as adhesives for dialysis and semiconductor cleaning agents, were developed through the participation of lead users.

Examples of Products Developed Using the Lead User Process

Here are some notable 3M brands that invented products using the Lead User Process:

• Transparent Film Dressings for Medical Use (3M Tegaderm™): Input from medical professionals, including doctors and nurses at dialysis centers
• Semiconductor Wafer Cleaning Products (3M Novec™): Inspired by ideas from semiconductor manufacturing engineers

Transparent Film Dressings for Medical Use: In September 1996, 3M's medical-surgical market product development team was one of the first groups within the company to test the advantages of the Lead User Process. The team was tasked with leading innovations in the field of surgical drapes, materials used to prevent the spread of infection during surgery. Existing adhesive drapes caused skin irritation during prolonged dialysis sessions. 3M designated doctors, nurses, and technicians at dialysis centers as lead users and held intensive workshops. Insights and experiences from these medical professionals were incorporated into the development of new medical adhesives, which contributed to reducing patient discomfort due to their skin-friendly properties.

Semiconductor Wafer Cleaning Products: During the semiconductor wafer manufacturing process, minute contaminants on the wafer surface could lead to defects. Traditional cleaning methods had limitations. To address this, 3M collaborated with lead users who were semiconductor manufacturing engineers. First, they analyzed the environment and requirements with semiconductor process experts and identified the most innovative lead user engineers in wafer cleaning. Through intensive workshops with these lead users, 3M generated new cleaning solution ideas. Based on these ideas, 3M's internal research team developed new products, resulting in the launch of the 'Novec' brand of semiconductor wafer cleaning additives and solutions. These products were innovative in effectively removing minute contaminants while being environmentally friendly.

Through such initiatives, 3M successfully translated the actual experiences and requirements of experts in various industries into innovative product ideas. Continuous utilization of lead users has contributed to strengthening 3M's innovation capabilities.

References

• Creating Breakthroughs at 3M, HBR
• Creating Breakthroughs at 3M - HBR OnPoint Enhanced Edition
• Discussing the Lead User Process: The Case of 3M Company, IvyPanda
• Products Created Through Lead User Process Generate Higher Sales, Newswise

Introduction

In high-tech markets, the share of revenue generated through licensing royalties is steadily increasing. Licensing offers new revenue opportunities, promotes the recovery of R&D investments, and contributes to market share expansion. This model is also adopted in the semiconductor industry, a high-tech sector with significant R&D costs. According to Statista, the semiconductor IP licensing market was valued at $6 billion in 2022 and is projected to grow to $11 billion by 2032.

The Case of ARM Holdings

ARM Holdings, a noteworthy company in this field, generates revenue by licensing semiconductor designs and providing related technologies. Established in 1990 in Cambridge, UK, as a joint venture between Acorn Computers, Apple, and VLSI Technology, ARM stands for Advanced RISC (Reduced Instruction Set Computing) Machines. ARM's first success was the ARM6 processor used in Apple's Newton PDA. ARM's design philosophy—simplicity, efficiency, and scalability—made its processors ideal for mobile devices and embedded systems due to their low power consumption and high performance. As the industry transitioned from the PC era to the smartphone era, ARM's designs were widely adopted across various sectors. ARM strengthens its technology protection through a robust patent portfolio and a revenue model that requires all companies using ARM designs to pay licensing royalties.

ARM's Business Model and Patent Strategy

Unlike integrated semiconductor companies like Samsung or fabless companies like Nvidia, ARM provides IP to fabless companies at the design stage, positioning itself at the forefront of the semiconductor value chain. ARM operates a business model centered on technology IP, licensing intellectual property without manufacturing semiconductor designs. Typical fabless semiconductor companies outsource manufacturing to external foundries, whereas ARM solely provides semiconductor design licenses. This distinction allows ARM to avoid the intense competition in semiconductor manufacturing and secure royalties from products using ARM's IP.

Collaboration within the semiconductor supply chain and ARM's decision not to expand beyond IP provision have turned the semiconductor IP market into a non-competitive space, benefiting the entire industry. ARM's business model and patent strategy have facilitated easy access to its technology, enhancing industry efficiency. The relatively low licensing costs have suppressed unnecessary competition in specific technological areas, promoted industry-wide standards, and reduced initial investment costs. This allows semiconductor companies to focus on their core competencies and accelerate technological innovation.

Mergers and Acquisitions

ARM's technological capabilities have made it a target for multiple mergers and acquisitions. In 2016, SoftBank acquired ARM for approximately $32 billion. In 2020, Nvidia attempted to acquire ARM for $40 billion, aiming to combine Nvidia's and ARM's technologies. However, this deal fell through in 2022 due to antitrust regulations and industry concerns. ARM subsequently went public on the Nasdaq in 2023. The industry pursued the direction of allowing ARM's technology to become a standard in specific areas, thereby reducing unnecessary competition and improving overall industry efficiency. Unlike major semiconductor companies, ARM's 2023 revenue was $3.6 trillion KRW (approximately $3 billion), with an operating profit of $900 billion KRW (approximately $700 million). In contrast, Samsung Electronics reported a 2023 revenue of $258.16 trillion KRW (approximately $196 billion) and an operating profit of $6.54 trillion KRW (approximately $4.89 billion)​ (Samsung News)​​ (SamMobile)​.

ARM's strong patent portfolio, continuous license revenue, technological leadership, broad industry applications, and scalable licenses consistently attract interest from semiconductor companies seeking to acquire stakes. However, ARM's strategy of not expanding beyond the value chain to maintain its dominant IP position can pose challenges depending on the acquiring company's focus. The strategic question remains whether downstream companies or other firms will acquire ARM. SoftBank's decision to list ARM on the Nasdaq reflects this complexity.

Conclusion

ARM Holdings occupies a unique position in the semiconductor industry through its licensing royalty revenue model. With a robust patent portfolio and technological leadership, ARM contributes to industry efficiency by providing widely applicable technologies. ARM's future, as a consistent target for mergers and acquisitions, remains a key point of interest.

References

• Lee Seung-woo (2023). Semiconductor Odyssey.
• Choi Kyung-mi (2023). SoftBank Acquires 25% Stake in ARM Vision Fund... Valued at $86 Trillion. Bloter. Link
• Im Geun-ho (2024). "Refusing to Use ARM Chips? You're Wrong, Totally Wrong." Hankyung. Link
• Statista.

This article aims to analyze the phenomenon of consumers transitioning from one generation of mobile communication technology to the next, focusing on the South Korean market. It will provide a brief overview of each generation of communication technology and examine consumer behaviors and telecom companies' responses during the transitions from 3G to 4G-LTE and from 4G-LTE to 5G.

Evolution of Mobile Communication Technologies

1G (First Generation) transmitted voice using analog signals, while 2G (Second Generation) converted analog voice signals into digital signals, allowing for digital voice data transmission. The term 3G (Third Generation) refers to the technology enabling the transmission of digital signals, which includes voice, text, video calls, and internet services. In South Korea, SK Telecom began deploying 3G in 2000, and it became widely used by 2011 with the proliferation of smartphones.

4G, and specifically 4G-LTE (Long Term Evolution), offers faster data transmission and multimedia services compared to 3G. 4G-LTE, the most advanced form of 4G technology, provides high data transfer speeds, low latency, and efficient frequency usage. SK Telecom commercialized 4G-LTE in Seoul in July 2011, leading to a natural adoption by consumers due to the surge in mobile data demand.

5G, the latest technology commercialized since 2018, features ultra-high-speed data, ultra-low latency, massive connectivity, and high efficiency. Ultra-low latency means minimal delay in data transmission, which is crucial for real-time remote control of robots and machines, real-time responses from autonomous driving sensors, and reducing latency in augmented reality services to enhance immersion. Massive connectivity allows for the simultaneous connection of numerous devices, making it suitable for controlling various IoT devices. Essentially, 5G serves as the foundational technology for new, yet-to-be-commercialized innovations. However, unlike the seamless transition from 3G to 4G driven by smartphone adoption, the consumer shift from 4G to 5G has been slower. The growth rate of 5G subscribers in 2023 declined compared to 2022, while 4G-LTE subscribers continued to increase, with a rise of 40,565 in December 2023 compared to November, marking a nine-month growth trend.

Factors Influencing Consumer Transition

Consumers generally expect lower prices or improved performance when transitioning from an older generation product to a new one. While 4G was essential for smartphones, 5G is designed for emerging technologies. As smartphones remain the central communication device for most people, the performance of existing LTE technology suffices for their needs. Moreover, there are few widely adopted devices that necessitate 5G, reducing consumer incentive to adopt the more expensive technology.

Building new infrastructure for next-generation communication services requires significant investment, and maintaining older networks also incurs substantial costs for telecom companies. Therefore, telecom companies encourage consumers to switch to new communication technologies by providing transition pathways. Telecom providers often minimize costs by ceasing the sale and support of older generation products post-launch of new ones, although regulatory obligations prevent them from abruptly discontinuing services. For example, SK Telecom spent around 100 billion KRW annually to maintain its 2G network, which still served about 1% of its total subscribers in 2020, but could not shut it down due to service obligations.

To minimize such costs, telecom companies have historically offered subsidies and trade-in programs to facilitate transitions to new communication technologies. During the early 2000s, when transitioning from 3G to 4G, mobile phone dealers often provided substantial subsidies, allowing consumers to purchase phones almost for free if they subscribed to specific 4G-LTE plans, accelerating the transition. Similar incentives were offered for the transition from 4G to 5G. However, the higher cost of 5G, regulatory changes affecting subsidies, and the emergence of budget telecom services have not driven as significant a shift as seen with 3G to 4G. Additionally, the slow deployment of 5G infrastructure has hindered the realization of its theoretical speed advantage, leaving 5G speeds far below the promised 20-fold improvement over 4G.

Current Status and Future Outlook

While 5G is the most widely utilized communication service today, it has not completely replaced 4G. Consumers, anticipating future innovations in Korea, might be waiting for an even more advanced 6G technology, potentially leapfrogging 5G.

Sources

1. Jinkyu Myung, Asia Economy, February 2019, "[From 1G to 6G] 3G and 4G... The Dawn of the Smartphone Era #2," Asia Economy
2. Junho Park, Electronic Times, March 2024, "[Data News] 5G Subscriber Growth Rate 16.9%... Growth Halved," Electronic Times
3. Seongwoon Yang, Headline Jeju, December 2011, "4G LTE Smartphone Market Subsidy Competition Overheats..." Headline Jeju
4. Gyepung Lee, The Korea Economic Daily, January 2024, "Will LTE Subscribers Recover to 50 Million... Telecom Companies' Profitability in Crisis," The Korea Economic Daily
5. Naeun Kim, E-Today, December 2023, "Cross Enrollment for 5G and LTE Plans Now Possible with KT," E-Today

Hanwha Aerospace, a subsidiary of the Hanwha Group, operates in the defense, space, and aviation sectors. The company began as Samsung Precision Industry in 1977, later rebranded as Samsung Techwin. In 2014-2015, Hanwha acquired the company from Samsung, renaming it Hanwha Techwin, and in 2022, Hanwha Aerospace merged with Hanwha Defense, forming its current structure.

Hanwha Aerospace operates in various industries, including space, aviation, defense, and marine. True to its name, the company recently announced its focus on the space and aviation sectors. To understand the company, it is essential to examine its mission and vision, as well as the resources and capabilities that provide it with a competitive edge in the market. This report aims to analyze Hanwha Aerospace's core competencies, assess its current status, and predict future strategies.

Vision and Mission

Hanwha Aerospace's vision is to "pioneer the future with new technologies and create sustainable value for tomorrow as a top-tier innovation company." The mission includes three main aspects:

1. Safeguarding freedom and peace as a leading national defense company.
2. Becoming an aerospace frontier based on innovative technology.
3. Leading the new mobility market with eco-friendly technology.

The company's stated purpose is "to contribute to the sustainable growth of the Earth and prepare for the next generation by bridging the distance between people with innovative technology."

Financial and Market Overview (2023)

As of 2023, Hanwha Aerospace had a market capitalization of 11.3 trillion KRW, with annual revenue of 9.3 trillion KRW and operating profit of approximately 700 billion KRW. The breakdown of its key industries, revenue, and export percentages is as follows:

• Aviation: Aircraft engines, parts production, and maintenance (Revenue: 18.59%, Exports: 36.6%)
• Defense: Manufacturing and sales of military equipment, defense electronics, and guided weapon solutions (Revenue: 62.84%, Exports: 26.5%)
• Security: Production of CCTV, DVR, NVR, monitors, etc. (Revenue: 19.66%, Exports: 87.5%)
• Industrial Equipment: Manufacturing and sales of SMT equipment, flip-chip bonders, die bonders, automatic lathes, semiconductor post-processing equipment, and machine tools (Revenue: 5.09%, Exports: 73%)
• IT Services: Designing and building IT systems, IT convergence engineering services, 4PL logistics services (Revenue: 6.85%, Exports: 7.6%)
• Aerospace: Development and production of Earth observation satellite systems (Revenue: 1.34%, Exports: 9%)

Core Competencies

Hanwha Aerospace has expanded its technology development to overseas exports, driven by strong domestic demand from the government. The defense industry is a strategic sector directly linked to national security, requiring robust technology and stable development and production capabilities. The domestic defense industry, nurtured under government leadership, ensures a solid market position and high entry barriers, which are core competencies for Hanwha Aerospace in this sector.

The company has unique core competencies in manufacturing gas turbine engines and holds a dominant position in the aircraft engine sector, making its capabilities difficult to replicate. Hanwha Aerospace's superior status in the domestic military aviation market has facilitated the expansion of exports to advanced and emerging markets worldwide.

In the security and industrial equipment sectors, Hanwha Aerospace operates intelligent video surveillance solutions and businesses related to semiconductor smart factories. Although the aerospace sector currently has a low revenue share and negative operating profit, the company is investing in this area to enter the satellite market, which requires complex technologies combining its strengths in security and IT services. Hanwha Aerospace's competitive edge in the aerospace sector lies in its cost and technological advantages. The company designs and produces most satellite components, including satellite cameras, sensors, and GPS receivers, and develops attitude control software in-house, enabling optimal design and cost control.

The company boasts world-class technology in high-resolution Earth observation satellites, exemplified by the successful development of the SpaceEye-X with a resolution of 0.5 meters, which is expected to enhance its competitiveness in the satellite imaging market.

Future Prospects

Hanwha Aerospace is leveraging its solid domestic market in the defense industry to innovate and expand its business areas, particularly in the rapidly growing aerospace sector, including satellites, space exploration, and urban air mobility (UAM). The company aims to become a leader in next-generation industries through technological innovation and strategic investments.

Sources

• Hanwha Aerospace: Company Overview
• Hanwha Aerospace 2023 Business Report
• KBS News: "Hanwha Aerospace Delivers 10,000th Aircraft Engine," KBS News

Application of the Technology Adoption Lifecycle Model to Smart Speakers

This article is based on the Korean market.

Applying the Technology Adoption Lifecycle Model to Smart Speakers

In the past, the growth predictions for the smart speaker market were very optimistic. Market research firms predicted that the global smart speaker market size would reach approximately 8.5 trillion won in 2020 and 19 trillion won by 2025, with a compound annual growth rate (CAGR) of 14.2%. Major products such as Amazon's Alexa, Google's Home, Apple's HomePod, SK Telecom's NUGU, KT's GiGA Genie, Naver's Clova, and Kakao's Kakao Mini entered the market, resulting in around 50 types of smart speakers in Korea as of 2020. Customers expected to enhance productivity using voice-activated AI assistants and envisioned new experiences through ecosystem integration, making smart speakers the control hub of smart homes. Companies aimed to collect voice data to train their AI systems, and the Voice User Interface (VUI) was anticipated as the next-generation computing platform. Hence, leading IT companies, electronics manufacturers, and telecom companies launched their smart speakers and smart home products integrated with their AI platforms. The combination of relatively simple hardware (microphone, speaker, processor chip) and the new technology of AI voice recognition software drove high sales and market growth from the initial launch of smart speakers in 2014-2016.

Market Growth and Current Realities

However, according to Global Information, the market size of smart speakers in 2023 was estimated at $8.2 billion, equivalent to about 11 trillion won, slightly below the expected 12.6 trillion won. According to IDC, the shipment volume of smart home devices in 2022 decreased by approximately 2.6%, amounting to 874 million units, indicating a noticeable decline in consumption. Both Amazon and Google recognized the stagnation in the smart speaker market, reducing investments, and Amazon laid off many employees in its Alexa division in November 2021. Korean companies have also stopped releasing new smart speaker models and updating services, signaling a slowdown in market growth. From the product lifecycle perspective, smart speakers have moved past the introduction phase and entered the growth phase, but they are no longer growing.

Response from Innovators and Early Adopters

Interest and adoption of smart speakers were smooth among innovators and early adopters. Despite relatively simple production and promotion, smart speakers attempted to expand into the mainstream market. However, they faced difficulties in spreading to the early majority, who constitute the bulk of the market. The voice recognition functionality alone was insufficient to provide practical value to these users. Early majority adopters are pragmatists who seek proven applications and services that avoid operational confusion. The smart home ecosystem was underdeveloped, lacking compatibility and standardization, making it difficult for various appliances and devices to integrate smoothly, thus reducing the practical utility of smart speakers as smart home control hubs. Moreover, the voice recognition technology itself had limitations and errors, affecting user experience. According to a 2018 survey, the satisfaction rate of AI speaker users was 49%, with the main reasons for dissatisfaction being poor voice command recognition, difficulty in natural conversations, and misinterpretation of external noise as commands. The voice recognition and assistant services provided by smart speakers failed to offer killer applications or distinctive usability, merely providing simple functions like weather and news searches, which lacked innovation relative to their price.

Future Prospects

AI voice recognition technology is being widely used in mainstream devices like smartphones, being integrated as a software component in various electronic devices rather than as hardware in the form of smart speakers. As voice recognition technology improves with advancements in NLP technologies like GPT, the future of smart home and AI ecosystem integration appears bright. However, the hardware form of smart speakers is unlikely to expand further.