There’s nothing to gain when there’s nothing to be lost
There’s nothing to gain if you stay behind and count the cost
Make the decision that you can be who you can be
You can be
Tasting the fruit come to the liberty tree.
– Peter Gabriel, from “Shaking the Tree”
Shaking. That’s a good metaphor to describe what is happening to businesses all over the world in this unprecedented economic earthquake that is causing stress to the traditional rules of business. The current shaking is producing racking up numerous casualties as governments seek to prop up their economies with various stimulus initiatives as we wait for the shaking to subside.
One benefit of shaking is that is tends to dislodge things that may have been stuck for a long time. Many readers of this column are familiar with Clayton M. Christensen’s Innovators Dilemma book from 10 years ago that describes how established companies become so dependent on the commercial success of some products that they avoid making the hard decisions to explore new products or business models that could destroy their cash cows. As a result, the business slowly declines until a more agile, less so-encumbered company comes along and provides the coup de grace (killing blow).
The semiconductor industry is clearly a shaken house and I believe it will emerge stronger as a result of these times. Many analysts are predicting that semiconductors will bounce back by the end of 2009 and perhaps we may see a somewhat different industry than the one of today. One of the benefits of such a shaken industry is that no one is comfortable and certainly not locked into an innovator’s dilemma mental framework. As a result, the entire industry can emerge healthier as it finds its way. Let me make some predictions based on early signs I am seeing.
Prediction 1 – Survival of the Smartest
We see major semiconductor companies like never before behaving like lean, mean startup companies. Europeans are shortening their time horizons to think less than 5 years out while American and Asian companies are extending them to think beyond the current quarter. More than ever companies are becoming agile by converting their fixed costs to variable in order to make fast adjustments in business strategy.
Prediction 2 – Consolidation of the One-Trick Ponies
The semiconductor has long had specialty suppliers of certain technology, some of which have been extraordinarily successful. However the rise of System on Chip (SoC) devices has put pressure on these companies because what has historically been a separate chip is now an IP block on a SoC. A good case in point is the recent acquisition of SiRF Technology (a Silicon Valley GPS chip provider) by Cambridge Silicon Radio (CSR), a famous Bluetooth chip provider. With two tricks in its repertoire now and a competitor eliminated, CSR can avoid a similar consolidation for the moment.
Prediction 3 – EDA will Find its Way
Synopsys’ stock price today is exactly where it was when I joined in 1995 and half of what it was when I left in 2003. And Synopsys is by far the healthiest EDA company in business today. Its rival’s stock prices are trading far below their levels of a decade ago and they find themselves fighting for their lives while doing business essentially the same way for 20 years.
Jack Harding, CEO of eSilicon, and former Cadence CEO wrote in a recent company newsletter piece entitled “Save me from EDA” that the EDA model is fundamentally broken, stating that EDA companies are the “only members of the semiconductor community that require payment regardless of success.”
Mr. Harding is onto something and given the shaky structure of the EDA, I believe that we can expect to see some significant restructuring of the EDA business model to be friendlier to a variable cost concept that the entire industry is moving towards.
Prediction 4 – Prices and Margins will Rise
I believe that we have reached the edge (precipice?) of what benefits are brought to the industry through cost-savings associated with disaggregation and efficiencies that come from being on the Moore’s Law treadmill. Innovation has a cost and that cost can no longer be subsidized for the hope of some future return. I expect that we are going to see pricing models emerge in semiconductor companies where the true cost of innovation is returned much faster in the chip lifecycle than we have seen in the past, including an increased emphasis on rapidly assembled custom ICs that are funded directly by the customer in the form of some kind of risk-sharing model.
Prediction 5 – IP Licensing Market will Double in 5 years
If there is a secret weapon that the semiconductor industry has not yet fully used, it is their deep portfolios of IP. Such IP is not only in the form of licensable circuit designs, but also in architecture, systems experience, and software design. So deep are the roots of this IP, spreading down into the university systems that it is virtually impossible for it to be quickly transplanted to low cost regions in other parts of the world.
As I mention above, IP is a significant factor in what the future of the industry looks like, providing companies a variable cost alternative to internal R&D expenses and the ability to respond quickly to customers by being able to put together extremely complex systems efficiently.
A final thought here. By the middle of the 14th century the Black Death had receded from Europe, forever changing the social-economics and demographics of the continent. The barren landscape that remained laid the foundation upon which the Renaissance was born. Might we also be at the door of an equally exciting period?
Warren Savage, President and CEO of IPextreme, is a well-known and published authority in the field of semiconductor intellectual property.
He has a long history of pushing the envelope of design methodology from his work in fault tolerant computing at Tandem Computers in the 1980’s and driving reliable design methodologies into commercial practice at Synopsys for its DesignWare IP product in the 1990s. Much of his thinking became embodied in the seminal book on IP reuse, the Reuse Methodology Manual.
(Jan 08) Warren Savage On: Collaboration Needed for Success
(Feb 08) Warren Savage On: Knowing Your No
(Mar 08) Warren Savage On: The Next Big Thing
(May 08) Warren Savage On: Waiting for Godot
(Jun 08) Warren Savage On: Our Virtual Future
(Jul 08) Warren Savage On: Being Plugged In
(Nov 08) Warren Savage On: Doom and Boom
(Dec 08) Warren Savage On: Back to the future
(Jan 09) Warren Savage On: Moneyball 2009