The magnitude of innovation by demand in a sectoral system: The role of industrial users in semiconductors

How relevant is innovation by demand compared to innovation by other actors in a sector? In quantitative terms, this is a yet unanswered question. The current study fills this major gap in the literature on industry studies. By taking a sectoral system perspective, this study is able to highlight the magnitude of innovation by intermediate user firms in a high technology sector: semiconductors. Using a combination of different datasets – patents, co-patents, R&D alliances and new ventures in semiconductors – this study proposes a novel quantitative approach to assessing the magnitude of innovative activity by user firms. The study reaches several findings. First, the magnitude of innovation by user firms, as measured by patents, is high in both absolute and relative terms compared to semiconductor firms and other actors in the sector. Second, the distribution of patents among different demand segments is highly uneven. Third, innovative user firms are highly heterogeneous in terms of size, diversification and vertical integration. Fourth, collaboration in R&D and co-patenting activity in semiconductors take place not just between user firms and semiconductor firms, but also among user firms themselves. Fifth, innovative user firms are quite active in entrepreneurial activity in semiconductors and their new ventures, on average, survive longer than spin-offs or other start-ups.