The Americans seem to have done a good job of mucking up the European semiconductor industry.
Not so long ago we had three European companies in the semiconductor top ten. Now it's only one, and that one - at No.8 - is dropping down the ladder.
What's more an Infineon, stripped of wireless by the Intel takeover, looks increasingly like NXP in its target markets - automotive, smartcards and multimarket - which will doubtless encourage some 'rationaliser' to put those two businesses together so a few thousand more people can be sacked.
NXP, of course, has been ransacked by its American owners KKR who, having been suckered into over-paying for NXP, will still be wanting to suck money out of the company - not least to keep servicing the enormous debt KKR loaded onto NXP to pay for the takeover.
So there's not much hope for investment in NXP.
As to Europe's wireless industry, the unimaginable seems to be happening with
ST-Ericsson's total annual turnover, at around $2 billion, is about the same as Qualcomm's annual R&D budget.
Not many guesses on who will win that game.
When you look back to the great expansionary leaders of the European semiconductor industry - Pistorio, Knorr, Schumacher, Krijsman and Hagmeister - you can only conclude that what we are seeing today is a failure of leadership.
Philips must be sitting with a big wedge of cash in its back pocket from the sale of NXP to KKR. Are they just waiting for the slaughterfest to come to its natural conclusion, when they can step in at the bottom of the market and pick up a consolidated bargain in the semicon industry?
Its a strategy, and very Old Europe in its outlook, but could fall foul of the consolidated market actually being a monopoly which is no good for anyone - inflates company values, hurts OEMs, and rips off the consumer.
If I were Qualcomm I'd be worried. Not worried about competition, but worried what Intel buying into their sector signals ... in recent years every market Intel has bought in to has turned to dust. Have they been more canny this time? Wireless chippery is getting to be pretty much a commodity. I think this move indicates that the corner has been turned and it will soon be going the same way as DRAM, microcontrollers and flash.
Where will the new profitable applications be? Probably somewhere where fab magic is a big help - in combinations of high speed, low power digital, very high power analogue, fancy materials. Is anyone in Europe doing this stuff? There is a decent III-V business, and we're doing okay on low power with ARM - others will know better though.
Infineon are very strong in power, as is ST. Energy may be more exciting than wireless to management (and investors).
One has to ask whether the continued high investment being made by the EC in semiconductor R&D is justified anymore or whether this should be diverted into other areas such as biotech, green technologies or software. The way things are going the only true semiconductor research needed will be to support Bosch who have not succumbed to the quick dollar route but continue to build an excellent company founded on their own world class technologies.
You may well be right about that jamo. I must say I like Stooriefit's comment that when Intel invests in a sector it's a sure sign the sector is about to go tits up.
You're absolutely right, Anonymous, people lke Pistorio, Krijsman and Knorr persuaded the EU to invest in semiconductor R&D, but the antics of the present generation of company leaders in flogging off large chunks of the industry to the Americans must make the EC authorities reluctant to keep on investing. Without that help the industry's set for a very great fall.
I once had a European boss whom I didn't like a lot. On the new-years eve (of 2002 or 2003, I think) he wrote an essay for a newspaper and I quote him here. "America will continue to be the fountainhead of innovation. China will become the factory of the world and India, the back office. Europe will become the museum of the world.. a place where great things have happened in the past".
Unemotional, unapologetic, direct. He was Dutch, of course.
I think the European Semi industry is doomed long term, The fundamental problem is new chip chip gross margin erosion.
Without a significantly higher price being paid for the latest widget, we have to deal with the commodity status of chips. This lack of gross margin will always drive the system towards supplying the lowest cost chip development.
When gross margins were 70%, for the wireless chip sector, we saw lots of European investment and R&D at 25% of sales. Today with new chip baseband gross margins in the 40% to 50% range, management needs sub 10% R&D budgets. Management finds the solution in Asia, because at least there, the financial numbers work out OK, and the business plan get the go-ahead.
To break this R&D trend Europe needs a big sector to take off and fundamentally deliver high margins. Maybe "smart power" will be the sector, but I wouldn't count on it.
Alternatively you can always pray that Asian semi companies like MTK crash and burn, unfortunately that bet / prayer borders on the fool hardy. So in the short term we'll see an EU product portfolio rotation into the higher margin sectors (Auto, Discrete) but long term there is nothing really protecting these sectors especially given the exponential growth of the Auto sector in Asia (sooner or later local Chinese chip makers will meet this demand... and so the rot starts)
Inineon said today they would use the 1.4B on production capability,
"300mm wafwrs and specialist processes such as SiC and GaN."
They are looking to expand SiC activities and invest in GaN on Si,
both power processes.
Prophetic words, FTM, sounds the way things are going. But it doesn't have to be like that. By exerting political will in the 1980s we stopped the European car industry being swamped by Japan and now have the strongest car industry in the world. Today, Europe's strong science base should be able to support a decent chip industry - if the political will is there. So though your boss got the trend right, you have to bear in mind Lord Cairncross' ditty:
'A trend is a trend is a trend
The question is: Will it bend?
Alter its course through some unforeseen force
And come to a premature end?'
Interesting, Jamo. Sounds a bit like the UK's 1970s/80s semi strategy of hiding away in niche markets to avoid the competition of the mainstream
Well Yes, Robert, but running ahead of commoditisation has always been the chip industry's means of survival. Doing that needs forward thinking. For instance the first MEDEA programme in the 1980s worked on platform ICs and these delivered great commercial benefits to ST, Infineon and Philips. Clever strategic thinking makes it possible to stay ahead of the inevitable commoditisation process.
David, I'm not sure what you are trying to say anymore. ST-Ericsson with their $2bn revenue are going to get clobbered by Qualcomm, but Infineon with their $1bn wireless revenue have been silly to exit the business. Which is it?
I tend to agree with the posters who have talked about wireless becoming commodity. Commodity business is no business for high cost regions. Better to move to the next high margin segment, which could well be power with all the things like smart grids and electric vehicles coming along. Commodity stuff necessarily requires scale and/or cheap locations, so leave it to the Samsungs and Intels of the world.
The interesting thing is what will Infineon do now. They certainly have to use this cash to push a big expansion into the non-commodity areas and not just fritter it away. I dont think we can judge the impact of this yet.
Good point Dave, my consistency is elusive. Infineon were doing rather well in wireless - growing fast, profitable, prestigious design wins - on a roll. ST-Ericsson are doing rather badly in wireless - declining revenues, unprofitable, demotivated by massive lay-offs, lacking direction and leadership. Brains can beat bucks or there wouldn't be any successful start-ups. I hope Infineon uses the money wisely rather than on a big pay day for investors.
Well Infineon could spend the money on a 300mm fab to make their mixed signal products more efficiently. Of course there used to be one for sale very conveniently located for them but TI got in first.
Yes Mike, the Texans still have big balls.
Pick an European high tech center. Count engineers, count managers. Compare. What do you see? Nothing!? Do the same with an American center. Compare. Now what?
Europeans put way too much emphasize on engineering management rather than the engineering itself.
Remember: Nothing from nothing gives nothing.