Mannerisms

Does it matter? Not really. Clearly the companies run by engineers will do better, in the long-term, than those run by accountants. That’s the only effect, and maybe that won’t be such a bad thing.

The decisions at NXP, TI, Freescale and ST were undoubtedly made under the pressure of the financial institutions which hold shares in the companies, and which require the companies to either deliver the financial performance they require, or see their share price marked down.

The financial performance screw has also been tightened, recently, by the interest the private equity firms are taking in the industry with their takeovers of NXP and Freescale.

So far, it seems, only the big companies are seeing the accountants take over. At second tier companies, where the engineers are still running the show, there is more of a disdain for the requirements of the financial institutions.

Take Linear Technology Corporation (LTC), the most profitable significantly sized company in the chip industry, where the shares have hardly moved in the last couple of years because the management refuse to adopt the strategy which is urged on them by the financial institutions. The institutions urge LTC to go for growth at the expense of profit.

LTC says no, and is prepared, as a result, to take the hit of a stagnant share price. “I’m not surprised by the valuation”, says LTC’s CEO, Lothar Maier, “I don’t worry about what I can’t control. I can control the growth and profitability of the company, and hopefully the market will follow. We’ve had the same strategy for the last 25 years. We focus on high performance analogue products. It was a good a strategy 25 years ago, and it’s just as good a strategy today.”

At the big companies, the effect of the ascendancy of the accountants will be to accelerate the decline in market share of the industry’s top ten companies. That is a decline which has been continuing for over 20 years.

For the last few years, non-top ten companies have been growing at more than twice the rate of top ten companies.

Now, by giving up fundamental process R&D, and having to go to foundries, where they will use the same processes and cell libraries as everyone else, the big companies will not be able to differentiate their products from competitors. Their decline will be swifter.

That’s not such a bad thing for the industry as a whole, where new companies have always replaced old companies on a regular basis.

But the trend has big consequences for the public funding of microelectronics R&D. Clearly this should now be directed at the smaller companies.