Angus Grieg

F E B R UA RY 2016

Semiconductors

Advanced driver-assistance
systems: Challenges and
opportunities ahead
Semiconductor companies can help take ADAS applications to a new levelprovided that they are ready to
embrace change.
Seunghyuk Choi, Florian Thalmayr, Dominik Wee, and Florian Weig

Demand for advanced driver-assistance systems

(ADAS)those that help with monitoring, warning,
braking, and steering tasksis expected to increase
over the next decade, fueled largely by regulatory and
consumer interest in safety applications that protect
drivers and reduce accidents. For instance, both the
European Union and the United States are mandating
that all vehicles be equipped with autonomous
emergency-braking systems and forward-collision
warning systems by 2020. A recent McKinsey survey
also suggests that car buyers are becoming even
more interested in ADAS applications that promote
comfort and economy, such as those that assist
with parking or monitoring blind spots.

Although ADAS applications are still in their early

days, original-equipment manufacturers (OEMs) and
their suppliers realize that they could eventually
become the main feature differentiating automotive
brands, as well as one of their most important
revenue sources. And the same technologies that enable
todays ADAS offerings could also be used to create
fully autonomous vehicles, which are now a major
focus of research and development, both at OEMs and
at high-tech players that have recently entered the
automotive sector, including Google. Any ADAS technology that gains early support could therefore
have an advantage if self-driving cars reach the market.

Many semiconductor companieseven some that

have not traditionally participated in the automotive
sectornow offer ADAS products or are developing
them. As with any new technology, however, much
uncertainty persists about the market, including
how consumers will respond to more advanced applications in which a computer controls or assists
with steering and other critical driving functions. In
the first part of this article, we address some of
the most pressing questions about ADAS, touching
on future demand, technical challenges, and the
evolving competitive landscape. The second part of
the article looks at ADAS from a semiconductor
perspective, describing how companies can capture
more value by expanding their offerings beyond
hardware, collaborating directly with OEMs, and
differentiating their technologies based on safety
and security features.

The opportunities and challenges ahead

Although ADAS technology has the potential to
transform the automotive sector, its current annual
revenueswhich range from about $5 billion to
$8 billion, according to most sourcesare modest
compared with those for other automotive systems.
For instance, 2015 revenues were about $30 billion
for audio and telematics and about $60 billion for
climate control. Part of the problem is that many of
the most promising ADAS applications are still
being refined or have not yet hit the market; still others
are expensive and mostly available in premium
cars. But one of the most important factors inhibiting
demand may be a lack of consumer awareness. In
a recent online survey of more than 4,500 car buyers
in five countries conducted by McKinsey, many
respondents were unfamiliar with ADAS applications,
and few purchased cars with this technology
(Exhibit 1). The survey offered reason for optimism,
however, since it revealed that the repurchase rate
for those who did buy a vehicle with ADAS was quite
high, ranging from 87 to 89 percent. This finding

suggests that once consumers become familiar with

ADAS, they will prefer cars with these features.
Even though industry experts hold different opinions
about 2015 revenues and growth prospects for
ADAS, most expect to see an annual increase of more
than 10 percent from 2015 to 2020. For instance,
one leading analyst predicts 16 percent growth during
this period, and a second predicts 29 percent
growth (Exhibit 2). This could give the segment one
of the highest growth rates in the automotive
sector and related industries. However, with the base
price for cars remaining relatively stable (with
a compound annual growth rate of about 1 percent),
semiconductor companies and other suppliers
may face pressure from OEMs and customers to keep
ADAS costs low, even as the technology becomes
standard. In consequence, we predict that growth in
ADAS value may proceed at a slower rate than
growth in unit volume.

ADAS technology: Overcoming limitations to ensure

active, autonomous safety
One factor that could influence ADAS uptake is
the rate at which the technology advances. Although
semiconductor companies and other players have
made important enhancements in recent years,
there is much room for improvement. For instance,
forward-collision warning systems still have
difficulty identifying objects when a vehicle is traveling
at high speeds. A typical ADAS application incorporates many technologies, as shown in Exhibit 3, but
four stand out with regard to the challenges they
present: processors, sensors, software algorithms,
and mapping.
Processors. Electronic control units (ECUs) and
microcontroller units (MCUs) are essential for most
ADAS applications, including autonomous driving.
For ADAS to advance, processors need better performance, which could be enabled by multicore

Semiconductors 2015
Advanced driver system
Exhibit 1 of 5

Exhibit 1

Many car buyers are still unaware of the technology for advanced driverassistance systems.
Transfer rates and process-step values in the consumer decision journey for advanced driver-assistance
systems in selected countries, %1
XX

Transfer rates2

Process-step values3

All recent
vehicle buyers

Awareness

77

Germany
100
Japan

44
77

49
100

South Korea

34

49

100
63
100

28

4
88

9
47

17

8
87

32

27
63

10

12

72

87

42

39

Intent to
repurchase4

Purchase

29

26

72

United States

Trial

8
89

1 The

online survey included 4,500 car buyers in China, Germany, Japan, South Korea, and the United States.
of buyers moving from one stage of the consumer decision journey to the next.
3 % of all recent vehicle buyers that reach a given step of the consumer decision journey. Figures may not sum, because of rounding.
4 Includes consumers who said they would definitely or probably purchase cars with ADAS features.
2%

Source: McKinsey survey on connected cars, 2015

architectures and higher frequencies, as well as

lower power-consumption requirements.

during less-than-ideal environmental conditions,

such as rain and fog.

Sensors. These devices gather information on their

Many industry players are trying to improve individual

sensors. They are also attempting to optimize system
performance through better sensor fusionthe
coherent combination of data from multiple sensors.
On the hardware side, intersensor communication is
a major challenge because it requires high bandwidth
and solutions for preventing network overloads.

immediate environment, such as pedestrians and

oncoming cars. Most have a limited measurement
range and signal bandwidth, which makes it difficult to distinguish between signal (for example,
obstacles in the road) and system noise. It is
especially difficult for sensors to track moving objects

Semiconductors 2015
Advanced driver system
Exhibit 2 of 5

Exhibit 2

The market for advanced driver-assistance systems is expected to show strong

momentum through 2020.
Compound
annual growth
rate, 201620,
%5

Global revenue projections for advanced driver-assistance systems, $ billion

Strategy Analytics1

TechNavio2

30

29
30.0

25

20

17.6

18.2

16

15
11.1
10 8.73

14.5

10.5

8.4 3
5

0
2015

2016E

2018E

2020E4

1Includes

autonomous emergency-braking system, adaptive cruise control, forward-collision warning, lane-departure warning,
parking assistance, back-side monitoring, night vision, driver monitoring (eg, for fatigue), and traffic-signal recognition.
2Also includes adaptive front lighting and heads-up display.
3Most sources estimate 2015 revenues between $5 billion and $8 billion.
4201819 compound annual growth rate used to derive 2020 market size for Strategy Analytics and TechNavio forecast.
5Figures may not sum, because of rounding.
Source: IHS; SBD; Strategy Analytics; TechNavio; McKinsey analysis

Players are currently optimizing the partitioning

and distribution of system architecture to address
this issue. On the software side, the fusion of image
and nonimage data is particularly challenging. Some
OEMs and tier-one suppliers are working together
with academia to address this challenge, as can be
seen in Daimlers collaboration with the Karlsruhe
Institute of Technology and the University of Ulm.
The limited functionality of todays sensors, combined
with their high cost, may be the greatest constraint
to ADAS uptake. Many companies are making

progress on both fronts, however. As one example,

Mobileye and various start-ups are trying to improve
the functionality of camera-based solutions, which
typically have difficulty detecting obstacles during
rainstorms or in other situations when visibility
is limited. If camera-based solutions catch up to radar
and lidar in functionality, they could eventually
dominate the ADAS market because of their lower
cost. One box solutions that combine lasers and
cameras may also become popular because they are
less expensive than radar or lidar alone. This is an
important development, since experts believe that

semiautonomous driving will not become a reality

until the industry has a cost-effective lidar system
that is fully integrated with other sensors.
Software algorithms. Running on ECUs and MCUs,

algorithms use the input from sensors to synthesize

the environment surrounding a vehicle in real
time (going above and beyond the processing that
sensors have already completed). The algorithms
then provide output to the driver or specify how the
system should actively intervene in vehicle control.
Semiconductors
2015
This could require some
of the most complex in-carAdvanced
driver
software integrationsystem
ever created, since any decisions
Exhibit
3 of 5
that the algorithms
specify, such as the application
of emergency brakes, are critical to ensuring safety.

Exhibit 3

In response to developments in sensor fusion, the

industry is about to transition from embedded software running on a single ADAS-specific ECU to
software platforms running on centralized ECUs or
MCUs. These software platforms have a higher
level of abstraction to allow flexible integration of
sensor-fusion algorithms. Industry players are
now focusing on creating such algorithms, which
allow for more accurate synthesis of sensor data
and more efficient processing, because they will help
prevent data overload or slowdowns. Another
priority is creating algorithms that allow for safer car
navigation and more accurately predict all possible
human behaviorincluding potentially irrational
responsesin various situations, such as when
a collision between two cars appears imminent.

Four control points in advanced driver-assistance systems are key for autonomous
driving and product differentiation.
Key control point

Connectivity
Internet between
vehicle-to-vehicle
and vehicle-toinfrastructure systems

Data cloud

Sensors
Perceive external
data

Actuator
Takes prompt
actions based on
computed results

Mapping
Stores and updates
geological
and infrastructure
information

Processors
(ECUs/MCUs)1
Process data
needed to make
decisions

Middleware
Software
algorithms

1 Electronic

control units/microcontroller units.

Source: McKinsey analysis

Mapping. When GPS coverage fails, such as during

tunnel travel, detailed and accurate mapping

systems can help prevent accidents. These systems
also store geographical and infrastructure
information, making updates as needed, and communicate with onboard sensors to determine a cars
exact location. OEMs and other players in the automotive industry are looking for lower-cost methods
to construct and maintain maps. Some of the
most recent solutions include deploying mapping
cars equipped with 3-D lasers and 360-degree
high-definition cameras. Map developers are also
leveraging data from sensors installed on
commercial fleets, such as FedEx, as well as GPS
data from drivers.

An evolving competitive environment

Many players are aware that regulators will require
vehicles to be equipped with certain ADAS applications over the next five years, and they are already
preparing to capture growth. This activity is
triggering unprecedented changes in the automotive
industry. First, more established high-tech companies, including semiconductor players, are actively
pursuing ADAS opportunities, even if they did
not previously have a presence in the automotive
sector. For instance, Intel, NVIDIA, Panasonic,
Qualcomm, Samsung, and Sony are going after such
opportunities, including those related to sensors,
ECUs and MCUs, systems, and systems on a chip. In
addition, many start-ups and other small to midsize companies in the high-tech and automotive
sectors are now trying to capture market share. These
include GestureTek, Hawk-Eye Innovations, and
IntelliVision, all of which have specialized expertise
in image processing and computer vision.
In another active shift, OEMsonce the primary
drivers of automotive innovationmay now be more
willing to collaborate with semiconductor companies
and other tier-two suppliers whose technologies
facilitate their development of ADAS. Similarly, both
tier-one and tier-two suppliers are aggressively

pursuing mergers and acquisitions to ensure they

have all the capabilities needed for ADAS, including
software capabilities.

How semiconductor companies should

approach the ADAS opportunity
Semiconductor companies now receive moderate
revenue from ADASless than $2 billion in 2015,
compared with $29 billion for automotive electronic
systemsbut this is expected to grow rapidly. To
ensure that they capture full value, semiconductor
companies must decide where, how, and when to
compete (in other words, they need to choose whether
to be early entrants or fast followers). This could
involve rethinking their product focus on hardware,
since branching out into software will offer more
opportunities, and developing new strategies for
collaborating with OEMs. Companies that move
quickly and establish themselves as ADAS players
may gain the most when the market moves into a
phase of even higher growth.

Where to play: Opportunities in hardware and beyond

We investigated ADAS hardware opportunities
for semiconductor companies through 2025 using a
model that considered various factors, including
expected end-market adoption and price erosion for
systems and components. We found that overall
revenues could increase steadily, reaching about
$4.6 billion to $5.3 billion in 2025. Parking-assistance
systems may generate the most revenue for semiconductor players, followed by automated emergency
braking, adaptive cruise control, and forwardcollision warning. For system components, the best
opportunities appear to be in processors (generating an anticipated 37 percent of total revenue)
and optical semiconductors (28 percent), as
Exhibit 4 suggests.
With processors and sensors expected to account
for most revenues, it makes sense for semiconductor
companies to consider competing in these segments
by creating differentiated offerings. In addition

to hardware, which still accounts for most of their

revenues, semiconductor companies could capture
value by expanding their offering into software and
algorithms.
Processor enhancements. Those players with experi-

ence in adjacent industries,

Semiconductors
2015 such as consumer,
mobile, or data
processing,
could be best positioned
Advanced
driver
system
to improve
processor
performancethe most
Exhibit
4 of
5
important selling point. Since fast processors are
found on the smallest nodes, they require huge

Exhibit 4

investments in R&D and manufacturing. Sales in

the automotive market alone will not justify these
investments, so semiconductor companies may need
revenue from other sectors to receive a decent return
on investment. In addition, players with experience
in adjacent industries may be able to adapt some
of their products for ADAS applications, reducing
development time. For instance, NVIDIA adapted its
Tegra platform, which was originally developed for
gaming devices, smartphones, and tablets, for use in
automotive systems.

For semiconductor companies, processors and optical semiconductors are expected to

account for most hardware revenues for advanced driver-assistance systems in 2025.
Semiconductor revenue in advanced driverassistance systems per application, %1
100% =

Most important components

$1.8
billion
$2.0
billion

38

12

Semiconductor revenue distribution on device

types in 2025, %1

$3.4
billion
$4.2
billion

$4.6
billion
$5.3
billion

32

30

19

21

Processors

Parking assistance

AEB, ACC, and

FCW 2

12

13

14

Lane-departure
warning

13

13

13

Blind spot

4
10

5
6

6
4

Driver monitoring
Adaptive front lights
Night vision
Other3

10

10

2015

2020E

2025E

37

Optical
semiconductors

28

Radiofrequency
semiconductors

13

Memory

12

Mixed signal

Other
3

Microprocessing units,
electronic control units,
microcontroller units, digital
signal processors, and
systems on a chip for signal
processing
Complementary-metaloxide-semiconductor
imaging sensors,
LEDs, laser diodes, and
photodetectors
Radio-frequency
transceivers and radar
preprocessing
System memory

Power-management
integrated circuits, bus
transceivers
Discretes, other types
of sensors

1Figures

may not sum to 100%, because of rounding.

emergency braking, adaptive cruise control, and forward-collision warning.
3Includes, among other categories, back-side monitoring and traffic-signal recognition.
2Autonomous

Source: McKinsey analysis

Sensor enhancements. Many different types of

sensors exist, but three are most important for ADAS.

The first and most cost-efficient option involves
optical sensors and camera-based solutions. These
sensors are versatile and can assist with a wide
range of ADAS functions, but they are easily affected
by poor weather conditions and other environmental
hazards. Optical sensors and camera-based solutions
also require complex software algorithms to recognize
objects, such as pedestrians and other vehicles.
The second category involves lidar systems, which
use a scanning laser to generate a complete 3-D
image of the environment. Unlike optical sensors,
lidar is less sensitive to weather conditions and
directly provides the location of objects around the
vehicle. But the lidar systems with the greatest
range100 meters surrounding a vehicle in all
directionsare large and typically require external
mounting. Although prices have fallen in the past
decade, dropping from many tens of thousands of
dollars to less than $10,000, they are still too
expensive for deployment, and further price reductions
are necessary to enable their adoption in ADAS.
Lidar systems with a more limited range, such as those
that can detect obstacles within ten meters in a
single direction, have already been incorporated
into some cars. For instance, Continental has
offered short-range lidar for some time.
Finally, ADAS often incorporates short- and longrange radar using electromagnetic waves in the range
of 20 to 80 gigahertz for determining the distance,
speed, and direction of objects. These sensors function
better than others during adverse weather conditions, but they typically involve compromises in
measurement range and angle. For instance, longrange radar can detect obstacles up to 250 meters
away, but the measurement angle is quite narrow. In
consequence, adaptive cruise control often combines long-range radar with short-range radar, which
has a wider measurement angle.

Although sensors generate less revenue than

processors, semiconductor companies may prefer to
work in this area because scale is of lesser importance, and it is easier to differentiate products. In fact,
many sensors are required to be application specific,
with different performance levels and signalprocessing capabilities for their ADAS applications.
As with processors, semiconductor companies may
gain an advantage if they have experience in adjacent
industriesfor instance, creating complementarymetal-oxide-semiconductor image sensors for the
consumer marketsince that will facilitate product
development. One challenge in adapting products may
involve customizing them to meet specific automotive requirements, including those for safety.
Software. Moving into the software space may be
difficult, since semiconductor companies often lack
advanced software skills. To compete, they may
need to build their software skills internally or undertake mergers and acquisitions with players that
have the necessary capabilities.

Semiconductor companies should consider bundling

hardware with nonsilicon offeringsboth software
(for instance, drivers, operating-system adoption, and
codecs) and algorithms, including those used
for real-time processing of sensor data. Bundling
may generate more value than simple hardware
enhancements, such as improved memory or centralprocessing-unit performance. In addition, semiconductor companies could attempt to provide more
modules or integrated solutions, such as systems
on a chip. OEMs may prefer modules and integrated
solutions, including software, over single-component
solutions because they provide better performance,
require much less effort to implement, and make them
less dependent on tier-one suppliers.

How to play: Strategies for standing out from

the crowd
The changing automotive market offers new
opportunities for semiconductor companies, but it

will also be intensely competitive. Three factors may

be crucial to winning market share: strong working
relationships with OEMs, collaborations with other
players across the value chain, and product
differentiation based on safety and security features.

small to midsize businesses are now trying to capture

value from ADAS. Semiconductor companies could
pursue multiple collaborations with these players
even those that may be competitors or customers. For
instance, they may seek to complement their hardware knowledge through partnerships with competent
Strong relationships with OEMs. Although OEMs have
software players that have strong automotive track
long relied on tier-one suppliers to provide innovative records. In some cases, two or more semiconductor
components, they are willing to take a much more
companies may work together. For example,
active role in ADAS development. In fact, OEMs may
Renesas Electronics collaborates with more than
eventually assume the lead because the systems
150 companies, including other semiconductor
found in fully autonomous vehicles must work together players, on infotainment and ADAS capabilities. By
closely. If they drive ADAS development, OEMs
collaborating with multiple players, semiconductor
will have the freedom to select the best subsystems companies may develop high-quality solutions
including sensors and general control systemsfrom that differentiate them from competitors. They may
a variety of tier-one suppliers, rather than relying on
also reduce costs, optimize resource use, and
a single source. Taking charge of ADAS development
decrease time to market. While many semiconductor
would also ensure that OEMs have a better chance of
companies may form partnerships with existing
differentiating themselves from competitors for both players, they could also consider collaborating with
driver-support and autonomous-driving functions.
start-ups that offer strong solutions.
The need to develop innovative ADAS technologies
is prompting OEMs to collaborate more closely with
tier-two suppliers, thereby giving these suppliers a
more critical role in vehicle design and manufacture.
The exact assistance that an OEM requests will
vary by company and application, so semiconductor
companies should be prepared to provide different
types of support. For instance, they might actively
help OEMs with integration, assist with the development of customized integrated systems, or support
the optimization of system performance.
Semiconductor players that are able to build strong
relationships with OEMs may have an advantage,
as will those with the ability to locate or assign field
engineers near their partners. Companies can
also create new relationships by demonstrating their
capabilities at trade shows or by reaching out to
OEMs to offer development support.
Multiple collaborations across the value chain.

Numerous nontraditional automotive players and

Differentiation through safety and security. ADAS

technologies already have high safety requirements,

and these will increase as applications take more
active control of cars. In fact, many future ADAS technologies will be rated at Automotive Safety Integrity
Level D, the classification reserved for components or
systems where a malfunction poses the risk of injury
or death. ADAS security requirements are also among
the highest because the consequences of a hackers
interference with steering, braking, or other vehicle
functions could be catastrophic. Already, there
have been some well-publicized hacks on non-ADAS
vehicle systems, such as those that locate, unlock,
and start cars.
The recent McKinsey survey on connected cars
confirmed that consumers are concerned about the
safety of ADAS autonomous-vehicle offerings.
When asked about autonomous driving, almost half of
respondents expressed distrust about the computers
that control the vehicle, and 38 percent stated
that they feared hacking. However, more than half

Exhibit 5

of respondents said they would be willing to use an

autonomous vehicle if their concerns were addressed
(Exhibit 5).

the safety of the ADAS component and the

entire system under different environmental and
operational conditions.

Since safety and security issues could derail the

ADAS market, it would be helpful for semiconductor
companies to become familiar with Automotive
Safety Integrity Level risk-analysis methods and perSemiconductors
2015
form them during the
earliest stages of product
Advanced
driver
system
development,
thereby
eliminating any potential for
Exhibit
5
of
5
component or system-level failures. As products
advance in development, semiconductor companies
may need to conduct extensive testing that evaluates

Autonomous driving is supported by cloud data, carto-car communication, and car-to-infrastructure

communication. In consequence, ADAS systems must
link to a vehicles communication module directly
to enable fully autonomous driving. Although these
modules have intrinsically secure connections,
additional protections will be needed. Advanced
hardware firewalls, incorporated network-level
security elements (for instance, crypto chips), and

Despite reservations about autonomous driving, more than half of surveyed drivers
would use this technology if their concerns are addressed.
Main sources of concern, % of respondents1
Distrust in a computer
driving the vehicle

48

Fear of vehicle systems

being hacked

38

Extra cost of autonomous

vehicles

33

Distrust of other human

drivers

Yes

45

28

Loss of the pleasure

of driving

20

Lack of willingness to share

data with public authorities

No or
uncertain

19

Possibility that the vehicle

will travel slower than one
operated by a human driver

17

Lack of comfort when a

computer is driving
Other

Share willing to use autonomous

vehicles if concerns are addressed,
% of respondents

10

1Based

on responses from car buyers in China, Germany, Japan, and South Korea (n = 3,500); data from US respondents were
not available for this question at the time of publication.
Source: McKinsey survey on connected cars, 2015

10

55

support of virtualization technologies are

opportunities for semiconductor companies to
differentiate their products in security.

When to play: The advantages of early entry

which are expected to reach the broad market

between 2025 and 2030. This is not to say that fast
followers cannot succeed, howeveronly that they
may encounter more difficulties and capture less value
than companies that aggressively pursued ADAS
opportunities early on.

Some semiconductor companies are hesitant to enter

the ADAS market because the technology is not yet
mainstream. Although their caution is understandable,
our research suggests that early entry may provide
ADAS applications may represent the next critical
long-term benefits.
business opportunity in the automotive sector, and
First movers may have a chance to shape the industry semiconductor companies are well positioned to
capture it. Their technological expertisealways
for instance, by helping to establish technical
standards or defining fundamental system-design valued by OEMsis now more important than
architecture. And companies that secure intellectual ever, especially if they can provide components and
solutions that improve system-level capabilities.
property for their ADAS technology early could
But it may be equally vital for semiconductor compapotentially collect royalties over a longer period, as
nies to adapt their traditional business model by
Bosch did when it created the controller-areaexpanding into software and integration capabilities
network bus system that became an automotive
and by developing new strategies for working with
standard for many years. Since there are only
OEMs and various players throughout the value chain.
a limited number of technical solutions for ADAS,
Those companies that take action now, while the
fast followers may also find that the best ideas
ADAS market is still in its early days, may emerge as
have already been patented. Even those that create
the winners.
innovative solutions will have to abide by decisions
earlier players made about technical standards and
system architecture, even if they are not optimal
for their own products. Consider what happened with
telecommunications: Qualcomm, as a first mover,
successfully pushed many of its own technologies into
the LTE standard for wireless communication.
Other companies must now adhere to these standards,
while Qualcomm receives royalties for its technologies.

Seunghyuk Choi is an associate principal in McKinseys

Seoul office, and Florian Thalmayr is a consultant in the
Munich office, where Dominik Wee is a principal and
Florian Weig is a director.
Copyright 2016 McKinsey & Company.
All rights reserved.

Early entry may also make sense when considering

the customer base and the industry. OEMs need
to screen and prioritize their ADAS suppliers now,
since automotive design cycles are long, so first
movers may be best positioned to capture value when
sales volumes increase. They could also gain a
long-term advantage because OEMs and tier-one
suppliers may want to stick with trusted, wellknown suppliers as they develop next-generation
technologies to create fully autonomous vehicles,

11